Clarifying the Corporate Social Responsibility Debate
One of the key issues discussed in any MBA program is Corporate Social Responsibility. And, in almost any class on the topic you'll hear a famous quote by Nobel Prize winning economist Dr. Milton Freidman: "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, engages in open and free competition without deception or fraud." The belief of some appears to be that businesses should not be involved in philanthropy, and they use Dr. Freidman to substantiate their view. I just wanted to share a PDF of Dr. Freidman's 1970 article The Social Responsibility of Business is to Increase its Profits for those who may not have read it. https://www.umich.edu/~thecore/doc/Friedman.pdf
Dr. Freidman wrote specifically of corporate executives being agents of the stockholders and viewed their actions of giving away stakeholder money in the name of social responsibility as being unethical, since they are giving away something that doesn't to them (i.e. company profits). His belief was that executives should give profits back to stockholders, who could then donate a portion to their dividends if desired. He did not have a problem with money distributed via dividends being used for social purposes. If fact, Dr. Freidman was an advocate of philanthropy and recognized its value to society. His core belief, based on my interpretations of his writings, was that the individual stockholder and not a corporate agent should direct the flow of money from a business to charities.
Dr. Freidman's view was that it's impossible for a business to do good, harm, or for that matter have any impact on society. A business has no heart, soul or thought process. It is impossible for a business to be socially responsible or irresponsible because it is nothing but a legal entity. Only people can be socially responsible. Thus, the central question of CSR becomes: Is it the role of an executive to spend stockholder money on what he/she views as socially important? Dr. Freidman was clear that executives should spend their own money on their social interests, but have no right or responsibility to spend the profits of the owners on social good. Dr. Freidman wasn't questioning the value of social giving, only the path by which money is distributed.
