Maximising the bottom line and nothing else
Corporate social responsibility was only for wimps, business was about profits.
Regarded as the most influential economist in the second half of the 20th century, he inspired politicians such as Margaret Thatcher and Ronald Reagan and had a profound impact on how we approach business and economics in the new millennium.
But even as many of the world’s largest businesses started to embrace corporate social responsibility (CSR) Friedman was unmoved.
The principle purpose of business was to maximise returns for shareholders, and to respect the law.
Those who take the Friedman line argue the only reason corporations put in place social projects is to win favour in their localities and to keep the agitators off their backs.
CSR advocates on the other hand argue that businesses solely driven by profit are incapable of creating policies to genuinely benefit society as a whole or those in whose communities they are located.
Opponents of CSR — mainly in the US it seems — argue the pursuit of profit needs no further justification and that the sole charge on company directors in company law is to maximise profits.
John Teeling, a well known Irish businessman and academic, argued that point in his lectures in University College Dublin for decades and lived by that rule in his business dealings, as those who got on the wrong end of his business dealings could testify.
That was Friedman’s view also and he remained steadfast to the end.
He came to prominence when corporate America was probably reaching its peak and when the rest of the world decided it wanted some of the good things the US had been enjoying.
In that context a strong argument can be made that by maximising profits businesses worldwide make their biggest and most effective contribution to society.
We have moved from dreams of a utopian world where all would be treated equally and given equal opportunities, but the sneaking suspicion among a growing number of people is that the free market envisaged by the Nobel laureate is not exactly the holy grail.
While the debate will continue, the president of the Institute of Certified Public Accountants in Ireland recently said it was time all businesses faced up to their broader responsibilities under the CSR banner.
Brendan Allen said “it is no longer acceptable to pay lip service to our corporate responsibilities by making an annual donation to a charity instead of sending Christmas cards”.
We need to be very clear on that point, he said. Irish businesses have responsibilities that extend beyond charitable donations.
Going well beyond the Friedman view of the world of business, he said CSR included our wider social and environmental responsibilities to all our stakeholders. The perception that only multinational companies can afford the luxury of a corporate responsibility policy was false.
“If we break down the essence of it’s meaning — doing the right thing — then it is clear that it is an issue for every business.”
In his view business had no option but to embrace it and those who do so in good faith make better profits.
That line of reasoning looks to be nothing short of doing the right thing for the wrong reasons.
It smacks of the old religious view that God rewards the just and seems to neatly fit the Friedman view that at the end of the day being in business is about maximising the bottom line and nothing else. Friedman at least said it out straight.
