Everyone understands that a company must make a profit to survive. Profit is what remains after all costs have been paid. Costs include payments to suppliers, employee salaries, building furnishings, paying taxes, and so forth. What is left goes to the shareholders.

Most organisations form a system in which many different stakeholders function. These stakeholders often have a major interest in their relationship with the organisation. Employees depend on it for their livelihood. Suppliers must receive decent compensation for their products and services in order to be able to maintain a healthy business themselves. The State needs tax payments to pay for general services such as healthcare, education, road maintenance, care for the elderly and so forth.

In this way, every company plays an important role in our society as a whole of interdependent organisations and people who together can ensure a decent existence for everyone.

This is precisely why our Supreme Court has determined that it is the responsibility of management to take the reasonable interests of all stakeholders involved in the organisation into account. The interest of other stakeholders should not be sacrificed for the shareholder’s interest in obtaining the highest possible dividend. Recently, these stakeholder interests have been explicitly expanded by the importance of the environment and of good and fair business operations (without discrimination and without boundary-crossing behaviour). This Environmental, Social and Governance (ESG) –interest must be taken into account in the company’s long-term strategy.

This principle is by no means always used in all countries. The New York Times of June 5, 2022, ran an article on Jack Welch, the man who became world-famous in the early 1980s as CEO of General Electric with an entirely new way of doing business. While companies in the United States in previous years were proud that they paid their employees enough and that they paid sufficient taxes, this idea has swiftly disappeared in the United States, partly as a result of Jack Welch’s ideas. A company must be ‘lean and mean’. It has to be as profitable as possible, paying as little tax as possible. This means seeking out the extreme limits of what is just legally acceptable. Employees should be paid as little as possible. Industrial waste must be disposed of as cheaply as possible. Milton Friedman says: ‘the social responsibility of business is to increase its profits’.

Jack Welch’s ideas sparked a major business operations revolution in the vast majority of organisations in the United States and beyond. Numerous seminars and courses were organised to teach CEOs and supervisory directors eager to learn this new way of thinking. Shareholders were happy.

At the beginning of this year, Times reporter David Gelles published a new book about Jack Welch. Gelles shows how, partly due to Welch’s philosophy, employees sometimes have to work two or three jobs at the same time to make ends meet. The statutory minimum wage in the United States has risen nominally by just $2 in more than 30 years (US$5.15 in 1990, US$7.25 in 2022). The gap between rich and poor has never been greater than in 2022.

General Electric went fatally downhill at a rapid pace after the Welch era. In retrospect, too little was invested in people, and in research and development. Growth was financed solely through the purchase of other companies.

David Gelles argues that the wealth that organisations generate should be better distributed among all stakeholders. Ultimately, this is in everyone’s interest, including the shareholder. It’s just like listening to the Supreme Court.