The question of the most important role for American businesses is complex, as the purpose of the corporation has been a subject of ongoing debate for decades. This discussion spans economic theory, moral philosophy, and practical governance. Businesses are simultaneously expected to be engines of wealth creation, sources of employment, drivers of innovation, and stewards of environmental and social resources. The various roles that companies play—from maximizing profits to influencing public policy—often appear to be in conflict, forcing a perpetual balancing act among competing obligations. Understanding the modern American corporation requires examining these different functions, from the historical focus on financial returns to the contemporary pressure for broader social accountability.
The Traditional Role: Maximizing Shareholder Value
The traditional view, often called Shareholder Primacy, asserts that the primary legal and financial duty of a corporate executive is to maximize profits for the company’s owners. This perspective was articulated by economist Milton Friedman in 1970, who argued that the only social responsibility of business is to increase its profits while operating within the law. Executives are viewed as agents of the shareholders, and their core fiduciary duty is to manage the company’s resources to generate the highest possible return on investment.
The underlying economic argument suggests that focusing solely on profit allows companies to efficiently allocate capital and resources, which ultimately benefits the entire economy. If managers use corporate funds for social causes that do not directly increase profit, they are essentially spending “somebody else’s money” on their personal preferences. This doctrine has been influential in shaping corporate governance, executive compensation models, and financial market expectations since the 1980s. The theory posits that shareholders, having received their profits, can then decide for themselves which social initiatives to support.
Economic Functions: Job Creation and Innovation
American businesses perform concrete functions that are foundational to national prosperity. The business sector in major developed economies contributes approximately 72% of the Gross Domestic Product (GDP), making it the single largest component of economic activity. This economic engine is the primary source of employment, providing the wages and salaries that support household consumption and stability.
The sector is also the predominant driver of technological progress and productivity gains. Companies are responsible for underpinning 85% of technology investment and 85% of labor productivity growth since 1995. Innovation, which results from corporate investment in research and development, is a massive generator of wealth, with economists estimating that it accounts for roughly 50% of annual GDP growth. New firms and entrepreneurial activity continuously introduce novel products and services, creating new markets and increasing competition, which forces existing firms to operate more efficiently.
The Stakeholder Theory: Serving Broader Interests
The Stakeholder Theory presents a significant counter-argument to the traditional shareholder-centric model, asserting that a business has responsibilities to a broader set of groups affected by its operations. These stakeholders include employees, customers, suppliers, and the communities in which the company operates, in addition to shareholders. This perspective holds that long-term corporate success requires balancing the interests of all these groups, not just maximizing financial returns for investors.
This concept has seen a resurgence in the modern corporate landscape, driven by societal and market pressures. In 2019, the Business Roundtable, an association of chief executive officers of major American companies, publicly redefined the purpose of a corporation to move beyond shareholder primacy. Their new statement committed to delivering value to all stakeholders, signaling a formal shift in how many large U.S. firms view their obligations. This approach argues that businesses should adopt a stakeholder focus, acknowledging the intrinsic value of all groups who have a legitimate stake in the firm.
Ethical and Social Responsibility (CSR and ESG)
The implementation of ethical obligations is often categorized under Corporate Social Responsibility (CSR) and Environmental, Social, and Governance (ESG) criteria. CSR is a more values-based, voluntary approach, encompassing a company’s efforts to contribute positively to society through activities like philanthropy, community service, and ethical labor standards. It is typically qualitative and driven by a desire to build brand credibility and enhance internal culture.
In contrast, ESG provides a structured, quantitative framework used primarily by investors and regulators to assess a company’s sustainable performance and risk exposure. ESG criteria focus on measurable metrics, such as a company’s carbon footprint, energy usage, employee diversity percentages, and the composition of its board of directors. Investors increasingly use these data points to make capital allocation decisions, forcing companies to integrate sustainability into their core strategy to remain competitive and attract funding.
Influence on Public Policy and Community Development
American businesses also act as powerful civic actors, wielding significant influence over the regulatory and legislative environment. This influence is exerted through traditional channels like direct lobbying and political action committee (PAC) contributions, which aim to shape policy outcomes in favor of corporate interests. Effective lobbying can lead to specific policy changes, such as reductions in a corporation’s effective tax rate.
A less transparent, but highly impactful, form of influence is the use of corporate philanthropy for political ends. Charitable giving by corporate foundations can function as a form of tax-exempt lobbying, with some research suggesting that politically motivated corporate charitable giving is significantly larger than annual PAC contributions. Companies also directly engage in local community development through partnerships and infrastructure investment, actions that foster goodwill and ensure a stable operating environment and a skilled local workforce.