Friedman Revisited – CSR, a fundamentally subversive doctrine
Friedman (1970) “The Social Responsibility of Business is to Increase its Profits” remains one of the most prominent antagonist of Corporate Social Responsibility (CSR). During my first week of lectures in CSR, (coincidently) The Economist (2011) published a survey conducted by Edelman in which the standpoint on CSR was collected from the ‘informed public’, presented by country.
The article highlighted the national differences (developed nations vs. emerging market/ old money vs. nouveau rich) of people agreeing to the notion of ‘make money, not CSR‘ , and proffered the notion that welfare states (in the case of Germany, Britain, Netherlands) houses more “corporate do-gooding” enthusiasm, as compare to country like India. The argument seems floppy if you look at where Japan, Sweden and Australia stands in the ranking. Where I will highlight is how informed are the ‘informed public’ (the interviewees).
Milton Friendman on CSR
Since my last post on this topic, I have taken joy, basking in the literatures on CSR by Howard R. Bowen (1953), Keith Davis (1960), Clarence C. Walton (1967), Committee for Economic Development (CED) (1971), Harold Johnson (1971), Preston & Post (1975), Arche B. S. Prakash Sethi (1975), Carroll (1979, 1983, 1999) and more. Each proffered their view of CSR which highlighted the importance of definition – What is CSR?
For Friedman, it is about parting with profit.
It is about managers whom as the agent acting on behalf of profit-maximising shareholders, not doing so but rather spent (well, he said taxed) the shareholders money for his own personal agenda. As the social responsibility of a business is to make money, and money only, then any other ‘responsibility’ can only be the interest of the individual, not the company (1).
What he called “scrupulous in exercising their social responsibilities”, are managers who not just reduce corporate profits and value of the company’s stock but is foolishly tampering with fiscal and legal responsibilities of government. Where the ramification will be a detriment to liberal-democratic system. For him, CSR is business executive pontificating socialism; ‘suicidal’ as he said (2), is inviting more political mechanism – government bureaucrats control (3) and worse, the utilitarian view of wealth that may manifest in hatred of profits (4).
CSR is not just about charity
Would it be preposterous to suggest that Friedman had only been acquainted with philanthropic view of CSR?
Bowen in his “Social Responsibilities of the Businessman” wrote in 1953 that social responsibilities is no panacea (I add: to macro-economics or social illness), “but it contains an important truth that must guide business in the future” (Caroll, 1999). Davis (1960) suggested that some social responsibility driven decisions can bring about long-term economic gain to the firm. Although none of them suggest how, it set the concept of CSR corresponding with economic gain.
To be continued. The author needs a refreshment consisting a cup of macchiato or two with a slice of cake.
In writing this post, the author aims to draw learning from literature and observation of the sentiments post-financial crisis.
(1) Friedman gave a sound argument on how (only) people has ‘feelings’, towards family, religion, country, and thus feels the need to exercise their conscience. Where else, a company, can only metaphorical has ‘responsibilities’ through the proprietor or people who performs tasks on behalf of the proprietor.
(2) In defence of capitalism – business thrive under market mechanism
(3) Friedman wrote : ” The political principle that underlies the political mechanism is conformity. The individual must serve a more general social interest – whether that be determined by a church or a dictator or a majority. The individual may have a vote (…), but if he is overruled, he must conform. “
(4) Friedman wrote: “… it helps to strengthen the already too prevalent view that the pursuit of profits is wicked and immoral and must be curbed and controlled by external forces.” On this point, the author was overwhelmed by the invectives and vilification of wealthy individuals during the recent online debate on whether elitists serve the mass, moderated by The Economist.