Once again, we\u2019re debating the purpose of corporations. On one side, progressives such as Sen. Elizabeth Warren argue\u00a0that companies \u2014 given broad rights in court decisions such as Citizens United v. Federal Election Commission \u2014 must also accept broad social responsibilities such as paying attractive wages and protecting the environment. On the other side are many corporate leaders and business school professors (who train future leaders), who continue to believe in the Business Roundtable\u2019s position\u00a0in 1997 that \u201cthe principal objective of a business enterprise is to generate economic returns to its owners.\u201d Such views echo free-market economist Milton Friedman, who emphasized nearly half a century ago that a business has only one responsibility, to maximize shareholder value. Exhortations for corporations to do much more will get louder in advance of the 2020 presidential election, and the silent resistance will increase proportionately. I believe there\u2019s a middle path. While corporations cannot, and should not, take on responsibilities that are properly those of the government or the local community, they can do better for themselves and for society by explicitly identifying core stakeholders \u2014 financial investors, no doubt, but also workers, customers and suppliers who make significant investments in the business \u2014 and publicly committing to enhance their collective value. There\u2019s merit still in many of Friedman\u2019s concerns. At the time, he was particularly outraged at the growing clamor in the U.S. for corporations to forgo raising prices as part of their supposed \u201cnational duty\u201d to help fight inflation. He rightly didn\u2019t believe it was the job, or even within the abilities, of companies to control inflation. Moreover, price-fixing would prevent the free market from sending the right signals about shortages. Friedman also deemed the push for new corporate social responsibilities profoundly undemocratic. Activists who could not get laws passed in Congress were using the bully-pulpit instead to shame corporations into changing behavior. His critics today complain that decisions by a corporate management focused solely on profits are harsh, give the corporation too short a time horizon, and favor an overly narrow group, the shareholders. The first two don\u2019t hold up to scrutiny. The private corporation\u2019s fundamental contribution to society is to make products efficiently and offer consumers affordable choice. In a competitive market, profits show how well it does this. Share prices reflect the value of profits over time. Since companies looking to maximize the value of their shares will care about profits over the long-term, most will train workers where needed and foster lasting customer relationships instead of ripping off employees or customers. Put differently, even if CEOs do focus primarily on share prices, that doesn\u2019t mean the market only rewards actions that boost this quarter\u2019s earnings. Public companies such as Amazon.com Inc. have thrived\u00a0despite investing in their businesses without showing much in the way of profits. At the extreme end, pharmaceutical companies and aircraft manufacturers take investment bets that won\u2019t pay off for decades. Critics are right, however, in asking why management should maximize only shareholder value. Friedman\u2019s theoretical rationale was that shareholders get what is left over after fixed claimants such as debt holders and workers are paid. By maximizing shareholders\u2019 \u201cresidual claim,\u201d management maximizes the overall corporate pie, since the rest are fixed claims on that pie. In practice, though, many of what are thought of as fixed claims are actually variable over time. Long-term employees, for instance, invest in developing firm-specific skills. This means they are no longer commodity labor, paid a wage determined in a competitive market. Instead, they get a negotiated wage which fluctuates with the company\u2019s fortunes. No less than shareholders then, such workers become residual claimants on the firm\u2019s value. Companies that are dependent primarily on them \u2014 think of an accounting or consulting firm \u2014 often recognize this by making their employees equity partners. Management should work to enhance the value of these stakes \u2014 for instance, by helping long-term workers maintain their skills. Such a commitment will make employees more willing to put out for the firm, and thus also enhances shareholder value. Also read:\u00a0Jet Airways share price plunges to 10-year low after report says bidders show no interest Corporations will still have to take tough decisions from time to time, including letting workers go when absolutely necessary. But job cuts that boost shareholder value aren\u2019t warranted if they reduce the value of other core stakeholders more. Some critics worry that if boards start focusing on goals other than maximizing shareholder value, it will be hard to monitor and control their performance. Yet U.S. courts have repeatedly decided not to second guess the \u201cbusiness judgment\u201d of boards, thus protecting them from shareholder review except for the most egregious failures. Moreover, a majority of states have passed \u201cconstituency\u201d statutes that allow board directors to consider the interests of non-shareholder constituents such as creditors or workers. Given the considerable leeway corporate boards already have, it would be a step in the right direction for them to specify whose interests, including workers\u2019, they are protecting. That would allow investors to better gauge the trade-offs a board will make. It would also give core stakeholders greater confidence to invest in the corporation. Most important in these populist times, corporate boards can also then avoid unnecessary political flak by identifying their core stakeholders \u2014 those who make financial or other long-term real investments in the firm. That would not just circumvent progressive critics, it would also be the right thing to do.