from the Wikipedia entry on “Corporate Social Responsibility”
(as of 9-26-06):
Corporate social responsibility (CSR) is an expression used to describe what some see as a company’s obligation to be sensitive to the needs of all of the stakeholders in its business operations.
A company’s stakeholders are all those who are influenced by, or can influence, a company’s decisions and actions. These can include (but are not limited to): employees, customers, suppliers, community organizations, subsidiaries and affiliates, joint venture partners, local neighborhoods, investors, and shareholders (or a sole owner).
Notice that while the term “stakeholder” looks similar to the word “shareholder”, the two mean very different things. The shareholders of a company include just the owners, while the “stakeholders” include all of those who can be effected by its actions (who have a “stake” in what it does) which could include everyone in the world.
Milton Friedman:
“The Social Responsibility of Business is to Increase its Profits”
A conceptual question: What is “corporate responsibility” ?
Friedman: “Only people can have responsibilities.”
The CEO is an employee of the owners of a business.
The CEO’s responsibility qua CEO is to conduct the business in accordance with the desires of the owners, “which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”
(In some cases the main objective of the corporation is to render a service rather than make profit).
Friedman does not tell us what he thinks the laws of society ought to be. It is a given that businesses are expected to obey the law. The main issue, as he sees it, is whether businesses have a moral obligation to do what is not legally required of them in order to promote social goods.
The CEO has a voluntary contractual arrangement with the owners – this is the source of responsibility to the owners.
But as a person, the CEO may have many other responsibilities, including moral ones. In this capacity, “he is acting as a principal, not an agent; he is spending his own money or time or energy, not the money of his employers or the time or energy he has contracted to devote to their purposes.” These are individual responsibilities, not those of business per se.
Does the CEO have social responsibilities in his capacity has a businessman?
What would this mean?
“...it must mean he is to act in some way that is not in the interest of his employers.”
Examples:
refrain from increasing the price of a product in order to avoid contributing to inflation or in order to make the product available to as many people as possible
make expenditures to reduce pollution beyond what is required by law in order to improve the environment
hire “hard-core” unemployed in order to reduce poverty
refrain from moving operations to other countries with cheaper labor, in order to protect the jobs in the home country.
We can imagine each of these being in the interests of the corporation (say, because it would be good PR). But, according to Friedman, it is meaningless to talk about “corporate responsibility” unless it sometimes requires actions that are not in the interests of the corporation.
Friedman’s position is that the CEO ought to act in the interests of the shareholders, and not the “stakeholders”. That is, the CEO’s responsibility is to best promote the interests of the corporation. Let’s call this position “Corporate Egoism”.
Egoism, as applied to individuals, is the doctrine that one ought to always act to promote one’s own interests. “Look out for Number One”, as the saying goes.
Egoism promotes selfishness, but not stupid selfishness.
Egoism does not say that one ought to do whatever one wants. You may want to smoke, but smoking isn’t in your best interests. So Egoism implies that you should not smoke.
Egoism implies that we have no duties to others whatsoever. Even if I make a promise to you, I have no duty to you to keep the promise. I may have a duty to keep the promise, but only if doing so is in my best interests. In that case, it is a duty to myself, not to you. Note that Egoism doesn’t require that we act against the interests of others. Often, it may require that we help others – but only when doing so would help ourselves.
Note that none of the other ethical theories we have discussed claim that people ought to promote their own individual interests all the time. This is obvious in the cases of Utilitarianism and Kant’s theory. With regard to social contract theory, it is less obvious: after all, the social contract is, by definition, one that that is in everyone’s interests, so it is in each person’s self-interest to want to live in a society where the contract is enforced. However, there are circumstances in which breaking the contract could be to someone’s advantage (because the person would be able to get away with it). In those cases, Egoism would tell the person to violate the contract, while SCT would not.
One criticism of Egoism is that it promotes selfish behavior at the expense of others. The following argument tries to respond:
1. In general, if we treat others badly (by not taking their interests into consideration), then they will do likewise. Examples:
If we harm others, others will be inclined to harm us.
If we lie to others, others will not believe us.
If we fail to keep our promises, then others will not keep their promises to us.
2. Conversely, if we treat others well, they will be more inclined to treat us well in return.
3. So, in general, we have a self-interested reason to avoid treating others badly and to treat them well instead.
4. According to Egoism, each of us ought to act in our own self-interest.
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5. Therefore, Egoism implies that we should treat others well, not badly.
Is this a sound argument?
Does Friedman object to corporations acting to promote social goods for the kind of reason given in the argument above? What does he object to?
The CEO “would be spending someone else’s money for a general social interest...But if he does this, he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other. Insofar as his actions…reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending customers’ money. Insofar as his actions lower the wages of some employees, he is spending their money.”
The point about spending the stockholders money is clear enough…but what about customers and employees? Here, it seems that Friedman is overreaching. He seems to be saying that if the money I spend has an adverse effect on you financially, then I am spending your money. By that logic, then everyone who is affected adversely by the way a corporation spends money has a legitimate beef…but this goes against his thesis. To be consistent, Friedman needs to stop at the stockholder.
...”He becomes in effect a public employee, a civil servant, even though he remains in name an employee of a private enterprise...It is intolerable that such civil servants...should be selected as they are now. If they are to be civil servants, then they must be elected through a political process. If they are to impose taxes and make expenditures to foster “social” objectives, then political machinery must be set up to make the assessment of taxes and to determine through a political process the objectives to be served...This is the basic reason why the doctrine of “social responsibility” involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternate uses.”
Here Friedman makes the “Boston Tea Party” point: No taxation without representation. That is to say, if CEOs are going to engage in social engineering for the public good, then the public ought to have some say in how they are selected. (Friedman, of course, does not think that is how CEOs ought to be selected).
Friedman would have better footing here if the CEOs were actually required by law to act in “socially responsible” ways. But even then, the laws themselves would presumably be the result of a legitimate political process, so it isn’t clear how this is a violation of democratic principles.
...
Is Friedman’s focus on the CEO misplaced? Let’s agree that the CEO is just doing a job that he or she was hired to do by the owners of the business. The CEO’s hands are tied, so to speak. But what about the owners? Doesn’t the same question about social responsibility arise for them?
“The doctrine of “social responsibility” if taken seriously would extend the scope of political mechanism to every human activity. It does not differ in philosophy from the most explicitly collectivist doctrine. It differs only by professing to believe that collectivist ends can be achieved without collectivist means.”