Lecture 5: Social Responsibility and Profits Milton Friedman’s article, which you read as part of last week’s reading assignments, laid out the issue of corporate social responsibility versus profits in about as clear a manner as possible. According to Friedman, a corporation can have no responsibilities itself because only people have responsibilities. Therefore, when looking at the issue of the ethical responsibilities of a corporation, Friedman says those responsibilities only rest with the managers of the business. The managers are employees of the company and, therefore, have direct responsibility to their employers to lead the business “to make as much money as possible while conforming to the basic rules of society.”1 On the other hand, Friedman argues that spending the business’ money for “socially responsible” purposes constitutes a misuse of the owner’s money as well as imposing a tax on the stockholders and customers of the company.
A recent Wall Street Journal article reiterated this same profit maximization argument that Friedman espouses. The writer of the article, Aneel Karnani, extends the argument against CSR by claiming that companies are ineffective in actually resolving social problems. As a result, their “focus on social responsibility will delay or discourage more effective measures to enhance social welfare in those cases where profits and the public good are at odds.”2 Read his entire article at the following link:
“The Case Against Corporate Social Responsibility”
The debate over the purpose of corporate business is an important one for understanding the ethical responsibilities of business. Do businesses actually have social responsibilities to the stakeholders other than its investors and its customers? That question is not particularly difficult to answer as long as the cost of fulfilling those social responsibilities do not conflict with the demands of a business’ investors (who want profits) and the business’ customers (who want lower prices).
There is another interesting online article that addresses this very issue. It is a written debate among Milton Friedman, John Mackey (CEO of Whole Foods), and T.J. Rodgers (CEO of Cyprus Semiconductor).3 Their debate frames the issue of CSR versus profits very well. Read it online at the following link:
“Rethinking the Social Responsibility of Business”
A recent article in the Dallas Morning News highlighted the success of Whole Foods’ business approach. The article discussed the success The Container Store and Whole Foods Market have found in following the principles of balancing the needs of all stakeholders. John Mackey is quoted as saying: “Paradoxically, the best way to maximize profits over the long term is to not make them the primary goal of the business.”4 Kip Tindell, the founder of The Container Store, in expressing his viewpoint about CSR as a means to profitability, quoted Andrew Carnegie’s business advice: “Fill the other guy’s basket to the brim. Making money then becomes an easy proposition.”5 Their socially responsible approaches to business are offered as a curative for mending “today’s rampant mistrust of business” while at the same time achieving profitability. They call it “conscious capitalism.”
The Sen and Frank articles in the textbook, along with Freeman’s article in last week’s reading assignment and the videos you watched last week from IBM, McDonald’s, and Ben & Jerry’s, all discuss how CSR helps companies achieve profitable results. Sen claims CSR is a further enhancement of ethical behavior that builds trust and loyalty among potential customers. Frank identifies the ways socially responsible businesses create commitment from employees, customers, and suppliers and how commitment leads to more profitability.
The question that arises, though, is whether CSR is really driven by a concern for improving the lives of others or just another means of maximizing profits. The Frank article quotes Albert Carr on page 273 of the textbook, where he mused that statements such as “it pays to be ethical” and “sound ethics is good business” are self-serving statements, having nothing to do with ethics.6 Frank disputes Carr’s claim, saying CSR is not about selfishness but survival for all parties. For me personally, Frank’s response is not all that convincing.
Cynicism toward CSR is not uncommon. In 2005, the Economist magazine published a story regarding CSR among companies and one of the writers stated the following:
Even to the most innocent observer, plenty of CSR policies smack of tokenism and political correctness more than of a genuine concern to “give back to the community,” as the Giving List puts it. Is CSR then mostly for show? It is hazardous to generalise, because CSR takes many different forms and is driven by many different motives. But the short answer must be yes: for most companies, CSR does not go very deep. There are many interesting exceptions—companies that have modelled themselves in ways different from the norm; quite often, particular practices that work well enough in business terms to be genuinely embraced; charitable endeavours that happen to be doing real good, and on a meaningful scale. But for most conventionally organised public companies—which means almost all of the big ones—CSR is little more than a cosmetic treatment.7
This cynicism is directed at the motivations of the companies engaged in CSR activities. But does it matter what the motivations of a business are? Is it really all that important that we know the motivation behind a company’s socially responsible activities? Are some motivations better than others? These are questions each person has to answer for himself. The answers, though, will play a major role in the ethical decisions businesspeople will face.
1 Thomas Donaldson & Patricia H. Werhane, Ethical Issues in Business: A Philosophical Approach, 8th ed. (Upper Saddle River: Pearson Prentice Hall, 2008), 34.
2 Aneel Karnani, “The Case Against Corporate Social Responsibility,” Wall Street Journal, http://online.wsj.com/ article/SB10001424052748703338004575230112664504890.html?KEYWORDS=case+against+social+responsibility (accessed 11 Sept. 2010).
3 “Rethinking the Social Responsibility of Business,” Reason, http://reason.com/archives/2005/10/01/rethinking-the-social-responsi.
4 Maria Halkias, “Putting People Before Profit,” Dallas Morning News (8 Aug. 2010).
6 Donaldson & Werhane, 273.
7 “The Good Company: A Survey of Corporate Social Responsibility,” The Economist (Jan. 22, 2005).