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.
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(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.
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Hello Catherine! Very interesting post. First of all, I’m really glad to leave in the country which is at the bottom of the list: Spain. The current economic downturn which deeply affect the country probable help to understand that. But there’s also something cultural about it. The world has changed a lot since Friedman’s article in the NYT, and his idea that the unique responsibility of a business is to maximize profits for its shareholders is unfortunately challenged by facts. There’s a lot of confusion about the terminology and the concept of CSR. As you correctly point out, some people tend to see CSR as philanthropy or charity. Many of Friedman’s followers also seem to consider only the legal aspects of the word “responsibility”. CSR has only 2 options: being insincere, a pure PR exercise, which seems to be fine by their standards, or illegal. I have the feeling that those points of view tend to be more frequent in the US. In Europe, it’s the word “social” that generates quite a lot of debate. Recently the CR Director of a large Spanish firm told me that he’d simply decided to drop the “S-word” for it was in his opinion misleading. Some people think “social programs” or “social issues” which are the responsibility of governments and NGOs, not businesses. At least, as one of my American friend highlighted, that wouldn’t happen in the US because people don’t necessarily expect the Gov. to take care of the social aspects. That’s why I like to go back to the basic definition for sustainability, and particularly “sustainable development – “a development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” Companies are huge consumers of resources, human and natural. Those resources are often fragile, scarce and non renewable. I don’t see the reason why companies wouldn’t be asked to manage those resources responsibly. Anyway, sustainable business practices have an impact on profits. In the short term and in the long term. Lower operational costs, improved corporate image and reputation, higher employee satisfaction, decreased employee turnover, greater ability to attract and retain talents, better relationships with suppliers and customers, and the possibility to do well by doing good! ..Well, now I need a cup of macchiato and a slice of cake!
Hi Frederic. How insightful!
Your observation could precisely be the drawback the industry suffers?
In the UK, where one would observe a (comparatively) large state and local gov, and where civic duty is not remarkably unusual, the general comments I received on the street resonates with yours – social issues are responsibility of government, nevermind that CSR is not just social.
I was getting familiarise with Burke and Logsdon (1996)’s 5 dimensions of what makes CSR strategic: centrality, specificity, proactivity, voluntarism and visibility. On specificity, their argument is that it’s only strategic if you could make it a competitive advantage- “ability to capture private benefits”. Viz. don’t do what everyone else is doing, even though on utilitarian ground, is the right/ best thing to. I could appreciate their point (worryingly) and have no doubt that this point would reason better with most firms , but it goes to validate Friedman’s remark, CSR (with the word social, as you pointed out) a fundamentally subversive…
Another cup of macchiato?