A Tale of Two Friedmans: CSR and Risk

Over the next couple of weeks, we’ve asked our writers (and guests) to respond to the question” What is the Social Responsibility of Business?”  Please comment away or contact us if you’d like to offer an opinion.

By Graham Russell

In September 1970, Milton Friedman wrote his famous paper claiming that the only social responsibility of a corporation is to increase profits for the benefit of its shareholders. Forty years later, his namesake, Thomas, continues to express the hope that business will be a key driving force moving us toward a more sustainable, resource-efficient global economy. It’s interesting to wonder what Milton would say about Thomas’ views if he were still alive today.

The point is, things have changed in 40 years and it makes little sense in 2012 to grumble about Milton’s treatise any longer. He was certainly no Rachel Carson – who was his contemporary and had published her seminal work Silent Spring, just a few years earlier. However, he was a brilliant economist who reflected standards of corporate behavior that were, in fact, accepted in his time.

Acceptable corporate standards have changed because society has forced change, sometimes by demanding increased regulation and sometimes through its buying habits. Is it conceivable that, if the citizens of Cleveland were presented with a proposal to repeal the Clean Water Act (passed in 1972), they would vote for a return to conditions that caused their local river, the Cuyahoga, to catch fire from time to time? What if it guaranteed the return of the tens of thousands of high-paying manufacturing jobs on which the city’s prosperity depended back then? I still don’t think so.

Think about:

  • the public outcry and reputation damage experienced by Nike in the 1990s when it was revealed that its shoes were being manufactured by young children working long hours in “sweatshops” in Cambodia and elsewhere
  • the billions of dollars wiped off Mattel’s market capitalization a few years ago when high lead levels were found in the toys it was importing into the U.S.
  • the fact that BP is still selling off entire chunks of its worldwide operations to pay for the costs associated with the 2010 Deepwater Horizon disaster
  • the fact (inconceivable even 2 or 3 years ago) that even the mighty Apple is openly talking about its efforts to improve working conditions and environmental practices at Foxconn and other companies manufacturing its products in emerging market countries

Most competent senior executives in the world’s major corporations have long recognized that knowingly ignoring the corporate behavior standards that are currently accepted by society is to run an ever-increasing risk that profits and shareholder returns will be reduced, if not devastated. Of course, there remain outspoken advocates for a return to the “bad old days” who still deliberately and openly ignore these standards. For example, there’s little doubt that Don Blankenship, former CEO of Massey Energy, was aware of his company’s miserable mine-safety record when the Upper Big Branch mine blew up in February 2010, killing 29 workers. However, even Blankenship lost his job and his shareholders saw their investment value plummet 45 percent in the next several weeks.

Referring to Milton’s paper of 1970, I note that he describes the responsibility of management 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.” To the extent that laws have changed (because society has demanded change) and ethical custom has changed (we won’t buy products anymore from companies seen to be deliberately flouting currently acceptable employment and environmental standards), if Milton were around in 2012 to update his 1970 treatise, I bet he would acknowledge that acceptable standards of corporate behavior have changed a lot in 40 years and that he’d issue a severe warning to any CEO still stuck in a 1970 mindset.

At its most basic level, therefore, practicing sustainable business is a way to avoid potentially massive financial risk and destruction of enterprise and shareholder value, behavior that Milton would undoubtedly have supported.

Being an intelligent economist, Milton would also have seen that resource constraints accompanied by human and environmental degradation are serious threats to the continued well-being of the global economy. And as an ardent capitalist, he would have agreed with Thomas that the best hope for our future is to leverage the resources and ingenuity of the business community to make more money by addressing these challenges. That’s the opportunity side of sustainability the Friedmans would have agreed upon and the subject of part two of this article.

Graham Russell is Founder & Principal at Trupoint Advisors, which helps companies achieve strategic success through sustainable business initiatives. www.trupointadvisors.com. Russell writes and speaks on the subject of sustainable business and teaches sustainability in the University of Colorado Denver MBA program.

image: Knowsphotos via Flickr cc (some rights reserved)

3p Contributor

TriplePundit has published articles from over 1000 contributors. If you'd like to be a guest author, please get in touch!

2 responses

  1. If only Milton was still here. I sincerely wonder if he would stick to his words or join Thomas in understanding the changing state of business. On second thought, his words have resonated over 40 years and prove to be as controversial now as they were 40 years ago.

  2. LYP-Tiffany And Co was set up in 1837 a U.S. jewelry and silverware company. 1853 Charles Tiffany master control of the company and simplified company name to Tiffany & Co..the company has since established the jewelry industry for business.Tiffany Outlet gradually establish branches in all major cities around the world.Tiffany Outlet Store has developed its own set of precious stones, platinum standards,and was adopted by the Government of the United States as an official standard.Today,Tiffany Outlet Online is one of the world’s famous luxury goods company.Cheap Tiffany And Co Blue Box more succinct fashion unique style logo.
    Tiffany & Co Outlet,Queen’s jewelry industry,with diamonds and silver products known to the world.Tiffany And Co Outlet was founded in 1837,the beginning of the silver cutlery famous,and in 1851 launched a 925 silver ornaments and more famous.1960 Hollywood actress Audrey Hepburn starred in the “Tiffany Breakfast"is Tiffany Outlet named.Tiffany Jewelry Outlet,a symbol of American design.Of love and beauty, romance and dreams as the theme,but the wind reputation for nearly two centuries.Tiffany Rings is full of sensual beauty and soft,delicate sensibility to meet the fantasies and desires of all women in the world.
    In the world of high heels,christian louboutin is absolutely can not be ignored.christian louboutin sale is the favorite of European and American actress!Red-soled shoes are christian louboutin shoes signs marking,highlighting women’s lovely,beautiful and not play mature sexy.Whether you what kind of woman,all need to put on a pair of christian louboutin boots to set foot on the red carpet,we are unable to intervene As for your choice,but you should know that the christian louboutin sales name.
    The Max Azria’s herve leger from France,the brand established in 1985,is a famous fashion design house in Paris.herve leger dress is committed to shaping the women’s physical beauty,showing femininity another line feeling the silhouette.herve leger dresses every cut close to the body, carving out the perfect female body shape,and thus the image to get the name of “herve leger bandage dresses“.In addition to the ladies,herve leger sale famous perfume,herve leger shop and shopping malls of the world designated sales.

Leave a Reply