The Social Responsibility of Business Is to Increase Profits
Milton Friedman, “The Social Responsibility of Business is to Increase Profits” In the article, “The Social Responsibility of Business Is to Increase Profits,” Friedman states that “businessmen believe that they are defending free enterprise when they proclaim that business is not concerned merely with profit but also with promoting desirable social ends. ”
This social responsibility is defined as Corporate Social Responsibility (CSR), which is the belief that “corporations owe a greater duty to their communities and stakeholders” by having a “social conscience. This, among other things, includes being environmentally responsible, contributing to non-profit organizations, and eliminating discrimination.
Friedman argues that “only people can have responsibilities” but that “businesses as a whole” cannot, as they are not persons. Since the corporate executive is an employee of the shareholders, and therefore only “responsible to his employers. ” The corporate executive has primary responsibility to his employers to conduct business as they see fit, and manage the business to create the most profit while following the “basic rules of the society”.
It is then seen that the corporate executive is acting as a “public employee,” while serving shareholders and should be directed by those shareholders how to spend their money. However, Friedman acknowledges that managers of corporations, while serving shareholders, are also people in their own right and may have their own social responsibilities that do not always follow those of the owners of the corporation.
In that case, if the manager chooses to act based on his own beliefs instead of the direction of the shareholders, he is not performing in the best interests of the shareholders and is “spending the customers’ money. This has a direct financial impact to both customer and employees. This can lead to the managers’ termination as he has not performed as directed by the shareholders by not making as much money as possible.
It is also discussed that because “society is a collection of individuals,” there are individuals that can coerce others to conform to certain social norms and while others may not agree, they can be overruled and then must conform. This then leads to a “political mechanism” which can regulate how corporations operate and dictate their “social responsibility,” which, in theory, would extend the cope of the political mechanism.
Friedman believes that a political mechanism is not necessary to achieve social responsibility because in a free society, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engage in open and free competition without deception or fraud. ” One question that can be posed from Friedman’s article is whether shareholders should prioritize the responsibilities that managers have as their agents.
While we can acknowledge that shareholders invest in a corporation to make a profit and that managers are hired to maximize those profits, it is the responsibility of the shareholders to provide guidelines to those managers and prioritize his/her responsibilities. While we can assume that the first priority of the shareholders would be to maximize profits for the corporation, subsequent priorities could fall within the guidelines of community outreach, exceeding legal obligations or being environmentally sensitive.
If we presume that corporations elect to be “socially responsible,” we should expect shareholders to provide policies and procedures to their managers. Without these, what responsibility does the manager have outside of maximizing profits? As Friedman suggests, the manager could be compelled to act on his own beliefs and moral obligations to his community, church or charitable organization. But, since these would be at his discretion, what check and balances would he have with the shareholders? Would he be using money otherwise returned back to the shareholders and supporting organizations that are opposed by the shareholders?
Because corporations are established to profit and shareholders invest money with expectations of a greater return, managers cannot be given a directive to be “socially responsible” without providing specific criteria of checks and balances to which needs to adhere. Therefore, it is imperative to the success of a corporation for managers to not act solely but rather to act within the policies of the shareholders. What Friedman implies is that shareholders should only be concerned with maximizing profits and not be obligated to be “socially responsible.
In that case, the manager would only have one priority, to maximize profits. However, what if that manager determined that social endeavors is the best option to maximize profits? This would make the corporation socially responsible while still maintaining maximum profits. The argument presented by Friedman in this case is that while the manager is performing as expected by maximizing profits, this type of “social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.
This “cloak” refers to corporations acting socially responsible but for the sole purpose of making profits rather than performing such endeavors for the sole purpose of benefiting society. An example would be a solar company providing “free” electricity to a campus in exchange for use land to promote their environmentally aware product. However, what they don’t tell you is that the electricity is being sold back to the power company for a profit. The perception is that the company has a social conscience when in reality it is being done for profits.
While I agree with Friedman’s assessment that managers, as employees of shareholders, are responsible for maximizing profits, I disagree that corporations should only comply with governmental policies and should not adopt policies to be socially responsible. At the time Friedman wrote this article, western democracies and communist countries of Europe were in the middle of the Cold War and the idea of a global economy was not as prevalent in society as it is today.
Consumers in those countries leaned towards buying locally over buying foreign products. Since the end of the Cold War, consumers have changed purchasing habits to buy products from companies, regardless of their country of origin if it were the best product. However, this led to the matter of public opinion towards corporations playing a larger role in how well they integrate themselves into a community or help preserve the environment is a factor in how consumers choose to purchase products.
For instance, if a company is considered “green,” it is determined to the environmentally friendly. This would lead consumers who support environmental protection to lead towards purchasing products from that company. Therefore, I believe that corporations take into account public opinion when deciding on whether to enact “social responsible” measures and that these measures are above and beyond the minimum requirements established by governing agencies.
I am also convinced that shareholders, more today than ever, budget funds to contribute to socially acceptable contributions and directing managers how to spend these. It is my opinion that due to public opinion and global influence on corporations, that a successful free market cannot be judged solely by the financial gain of a corporation, but in conjunction with how these corporations influence positive changes in society.