A couple of weeks ago I was asked by Simoney Kyriakou at FT Adviser[i] to comment on the issue of defence investing, a subject I’ve been discussing at depth with Neville White (more on that at a later date).
When trawling the FT Adviser pages last night (as one does) I came across Simoney’s article again. Whilst I am indebted to Simoney for giving me the last word, I was interested in a comment posted by a member of the community. I won’t print it verbatim, but it’s interesting and I would encourage anyone who has an interest in the subject to go and read the original article, and the comment, instead. What struck me was their final words:
“Anyway without all this agonising it is perhaps as well to bear in mind that investing is about making a profit.”
Firstly, I think that a fair amount of agonising is quite healthy. Philosophers and poets have been doing it for some time, and whilst it hasn’t always been in their long-term best interests (Socrates…) it tends to be in ours that someone actually questions whether what we are doing is right. Secondly, and perhaps more importantly in this case, the reduction of investment to “making a profit” bears further scrutiny.
Milton Friedman’s famous assertion, printed in the New York Times in 1970[ii], that the purpose of a business is to increase profits for shareholders, is often upheld as the paramount reason for businesses putting profit before anything else, even if I don’t think this is quite what he was saying.
Friedman’s position can be summarised as follows:
- “The Social Responsibility of Business is to Increase its Profits”
- The managers of a business are the agents of the shareholders.
- Their role as agents is to fulfil the will of the shareholders within clear legal and ethical boundaries.
- Going beyond the level of pollution reduction necessary to the best interests of the corporation is contrary to maximising shareholder value.
- Acting in such a way is “spending the…stockholders…money”.
This position, even if it is reasonably well argued, is not one which is universally accepted. As current markets will tell us, a business can do significant social and environmental harm long before the hand of the market strikes it down.
Friedman’s view is dependent on shareholders only wanting to own the shares of the company for the purpose of making money from the company. People may own the shares of the company for purposes other than to make money from those shares, such as to have the right to vote or attend the AGM, but this would not be investing in the company, in the strictest sense. However, people do invest in the shares of companies they hope to influence, with the intention of improving their performance. Sometimes the performance they aim to improve is more than just financial.
One significant challenge to Friedman’s view is the idea of stakeholder capitalism, developed by R. Edward Freeman[iii].
Briefly, the challenge presented is that Friedman’s approach is too narrow, focusing solely on the firm’s executive management and their relationship with shareholders. Rather, businesses exist at a nexus of relationships among their stakeholders. Freeman’s approach suggests that businesses should be managed with the benefit of all stakeholders at their heart and that from this sustainable value is created.
We can pretend that the wider world doesn’t matter, and that we’re just in it for the financial returns. If, in order to achieve those returns, management are acting against the interests of stakeholders (suppliers, clients, shareholders, staff, society as a whole), this has the potential to damage those stakeholder relationships.
Misalignment may be costly:
- Staff may choose to work for competitors, and it may become difficult to hire replacements.
- Clients may choose competitors whose products and services are more aligned to their wants and needs.
- Suppliers may prefer to offer their goods and services to other businesses.
If a business is misaligned with society as a whole, it may find the idea of all publicity being good publicity doesn’t always work.
I would add that Friedman suggests that management, as agents of the shareholders, should fulfil the will of the shareholders. It seems odd then that those supporting this doctrine might resist the idea that those same shareholders might want the company they own to change or to act in a particular way.
Whilst I disagree with the comment made on the original article, in that I believe a degree of introspection or “agonising” is important, like Freeman I also believe that businesses have a duty which extends beyond simply increasing profits for their shareholders. Businesses have a vital social function, as providers and consumers of goods and services, of employment, and as sources of taxation. So, although some may believe that investing in defence is not morally hazardous, and might be content with the perspective that investing is purely about profit, not everyone shares this perspective.
Recognising that the world is not black and white, that competing perspectives should be listened to, debated and critiqued, I have no objection to the idea that people might not agree with me. Exploring different perspectives gives us a wonderful opportunity to learn.
Until next time
Alan
[This article was first posted on LinkedIn in October 2026 while the Unburdened website was undergoing maintenance. The article was extended with the following recommendations for financial planning and references for the final published version here.]
What does this mean for financial planning?
- Financial planners should, particularly when working with clients who have strong values and ethical preferences, consider what they think “return” means; is it just financial return or do they seek something more than this.
- Explore the tensions which exist in different areas of advice, don’t just present one theory as the only one which is important because it happens to fit your world view. A good example of this would be the tension between passive and active investment management. Whilst many clients would be well-served by a portfolio which represents broad market exposure, this is not always appropriate for their specific needs. Financial planning is no place for ideology, we are here to serve the client and their needs and objectives.
- When considering alternative solutions, consider that some investors may want different things. One investor may be happy with the lowest cost solution, while another may be more focussed on how their investment manager is engaging with the management of the companies in which they invest.
- Explain the differences in approaches that companies can take to ethical and sustainable investments. A fund which merely excludes and a fund which actively engages have vastly different approaches.
- Investment managers should avoid making unsubstantiated claims about the impact of their engagement and publish details of their actual interventions with companies so that investors can ascertain whether this aligns with their needs as stakeholders.
References
[i] Kyriakou, S. (2026) Make war, not love: how defence became framed as ‘sustainable’, FT Adviser, [Online] [Accessed on 12/10/2026] https://www.ftadviser.com/content/5366dfff-de80-418a-9acd-b716acd9728a
[ii] Friedman, M. (1970) “The Social Responsibility of Business is to Increase its Profits” New York Times Magazine [Online] [Accessed on 12/10/2026] https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html
[iii] Freeman, R. E. (2008) Managing for Stakeholders: Trade-Offs or Value Creation, [Online] [Accessed on 13/10/2026] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1182862