One of the most jarring of the many jarring things that happened in 2024 was the outpouring of support for Luigi Mangione, the alleged killer of UnitedHealthcare C.E.O. Brian Thompson. As I walked through Washington Square Park over the holidays, protesters chanted, “Profits over people!” In a tragic instant, Thompson became a scapegoat for the legitimate—but until now, amorphous—rage people have about America’s health-care system, in which a company’s profits can be someone else’s broken life.
A few weeks after Mangione fatally shot Thompson, The New York Times reported that for decades, as the opioid crisis claimed more and more lives, the middlemen that could have limited the flow of drugs instead continued to facilitate it—because they were being paid billions of dollars to do so by the opioid manufacturers, including Purdue Pharma. When one suggested that helping to stop the epidemic might have been the right thing to do, another responded, “The rebates we collected prevented us from doing it.”
The public’s rage raises a very pointed question about the idea that profits are the sole measure by which a business should be judged. The supposed genesis of that idea was Milton Friedman’s famous (or infamous) 1970 New York Times op-ed entitled “The Social Responsibility of Business Is to Increase Its Profits.” If everyone outside the executive class believed that, then no one should be angry; the opioid middlemen, an insurer who denies care, and all the others who put profits over people are doing exactly what they should do.
So one way to think about the outrage is that it shows a growing gap between what society expects of business and what business expects of itself. If a course correction is possible, where should it begin?
Executives act as if the bottom line is all that matters, because it’s in their interest to do so. For the most part, they aren’t paid to consider other factors. As UnitedHealthcare’s own financial documents say, the overriding goal of its compensation plan is to “align the economic interests of our executive officers with those of our shareholders.”
The company does nod to the idea that performance includes “our mission of helping people live healthier lives and helping make the health system work better for everyone,” but in contrast to the financial goals, there are no specifics as to how that might be incorporated into “performance.” In this, UnitedHealthcare is like other large companies. A 2019 study by consulting firm FW Cook says that 70 percent of the 250 largest S&P 500 firms use non-financial metrics, but they are weighted less heavily than the financial goals.
In contemporary corporate America, a “well-designed pay package” is one in which executives and shareholders both need the stock to go up to make money. So-called pay for performance also justifies the enormous gap between what executives make and what ordinary workers make.
As a corporate-governance lawyer from Cooley put it, “From proxy advisory firms to institutional holders to the drafters of Dodd-Frank, the question of whether CEO compensation is aligned with performance is a key measure of whether compensation is appropriate.” So it’s “appropriate” that the median pay for C.E.O.’s at S&P 500 companies was $15.7 million, according to ISS-Corporate, which advises shareholders on how to vote. By this measure, Brian Thompson’s pay in 2023 of $10.2 million wasn’t even particularly lavish.
Executives act as if the bottom line is all that matters, because it’s in their interest to do so. For the most part, they aren’t paid to consider other factors.
Compensation committees, which set executive pay, are trying to deliver only what investors demand. In today’s world, no management team that takes its eye off the bottom line is going to last for long, and the board will likely find itself ousted along with them.
Everyone likes to point a finger at Friedman; that 1970 op-ed can “be seen as providing the intellectual foundation for the ‘shareholder value’ revolution,” argue economists Luigi Zingales, of the University of Chicago, and Oliver Hart, of Harvard. But Brian Cheffins, a Canadian legal scholar, points out that if Friedman were to blame, the shift would have happened sooner than it did. Instead, Cheffins observes, “the shareholder-first mentality that would come to dominate in corporate America would only take hold in the mid-1980s.” The cause was the rise in hostile takeovers. Producing ever increasing profits wasn’t so much an intellectual ideal as it was executive-job safety.
Pointing a finger at the demands of shareholders would be convenient—but that’s too convenient. They, along with all of us, participate in a world that is more and more oriented toward short-term results. If a money manager underperforms their stock-index benchmark, even for a few months, then the real investors—such as you and me, or like a pension plan—might pull their money from that fund. Soon, the money manager could find themselves with no money to manage. In other words, we’re to blame, too.
In fact, we have a system in which everyone, from executives to money managers to shareholders, is guilty. And so no one can be blamed—not even Friedman. In fact, Friedman never considered “self-interest to be synonymous with selfishness and thus devoid of ethical considerations,” wrote economic scholars Harvey James and Farhad Rassekh in a 2000 paper. Both Friedman and Adam Smith, the other supposed defender of profits at all costs, actually required “individuals to moderate their actions when others are adversely affected.” But the oversimplification has proved impossible to eradicate, probably because it offers such a convenient justification for self-enrichment.
No management team that takes its eye off the bottom line is going to last for long, and the board will likely find itself ousted along with them.
Most absurd of all, no one even knows whether pay for performance works. In 2017, MSCI published a paper entitled “Out of Whack,” in which they failed to find much correlation between pay and performance. “The 40-year-old approach of using equity compensation to align the interests of CEOs with shareholders may be broken,” they wrote. Other scholars have published papers cutting the numbers differently, arguing that it does work. A motivated economist or compensation consultant can make the numbers say whatever they want. The truth is that no one really knows.
Although executives are far from the only ones responsible for our system, they are still the ones who must start to buck the system—and if non-financial goals such as “helping people live healthier lives” do matter, then they should act accordingly. Shouldn’t that be the responsibility of those who are paid small fortunes?
In his 1936 essay “The Crack-Up,” F. Scott Fitzgerald wrote that “the test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.” Corporate executives should be able to manage companies with the conflicting ideas that the bottom line is the most important thing, but not always the most important thing. Because even the most powerful companies are just participants in a broader world, and if the rage of those who are sacrificed to feed the bottom line wrecks that broader world, well, then a crack-up is coming.
Bethany McLean is a journalist and the author of several books, including The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (co-authored with Peter Elkind) and, most recently, The Big Fail: What the Pandemic Revealed About Who America Protects and Who It Leaves Behind (co-authored with Joe Nocera)
