Monday, June 30, 2008

The Role of Corporate Social Responsibility

I agree with Milton Friedman when it comes to the view that managers should recognize that shareholders come first. The bizarre reaction by some in the media and in turn the public at large has been that this must mean that managers should basically exploit anything and everything in the pursuit of profit. In the last few days I came across two articles of interest.

From Time Magazine:

"Simultaneously we hit upon the philosophy that I think will be the dominant philosophy in business in the 21st century," Mackey says. "It's this principle that the purpose of business is not primarily to maximize shareholder value."
From the Globe and Mail's Report on Business Magazine:
Every big company these days professes to have obligations to employees, communities, the environment—and humankind in general—that go well beyond making money. Annual reports, with their yawn-inducing financial statements, have been superceded by earnest CSR and sustainability reports. It's a long way from Milton Friedman, who in 1970 called business supporters of corporate social responsibility "unwitting puppets of the intellectual forces that have been undermining the basis of a free society." Would any Top 1000 CEO dare side—in public anyway—with Friedman today? Not likely.
In the Time article, the founders of Whole Foods Market and the Container Store say that in building their businesses, they put their customers first and joke about how they're both fabulously rich. It's at this point I have to ask - how did they make the money they have? It couldn't possibly be because they've been shareholders could it? This idea that putting your customers "first" doesn't directly benefit your shareholders is bizarre at best. Surely, if customers were really first, both companies would just sell their products at a subsidized rate (ie a loss) or better yet, give their products away?

The Report on Business article ironically comes out at another extreme and against CSR because companies greenwash (giant PR efforts that amount to very little at all), and in doing so, governments abdicate responsibility to regulate corporations. Of course in this case, the journalist is referring to mining companies that work with despots around the world. Let me be pretty clear though that like Market Based Management pointed out a few days ago, I too am against any form of political profit but this approach seems to be a bit of a broad prescription for a somewhat limited industry. Besides, I seriously doubt that CSR allows countries to ignore their responsibility to their people - it may give them another excuse, but the blame here lies almost entirely on the governments themselves.

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