By Rawan Bou Hassan | Staff Writer
The management goal of a corporation is to maximize stock price and shareholder value. The social responsibility of a business is to undertake voluntary activities to ensure environmental and social sustainability. But Milton Friedman was against the so-called corporate social responsibility (CSR) of firms. He explained that companies have a social responsibility towards “increasing their profits within the basic rules of society.”
Friedman said that a corporate executive is an employee of the business, so he is an agent for the shareholders and has direct responsibility towards them. Shall he go beyond that responsibility, he should do it at his own expense by acting as a principal. Thus, spending his own money and effort, not that of his employers. If he does it at the expense of the shareholders, then he is indirectly imposing taxes and processing them for social purposes. This theory would raise questions under two levels which are political principle and consequences. Thus, Friedman backed his argument by relying on the philosophical approaches of utilitarianism and deontology. What is meant by “consequences” is that this corporate executive cannot measure the costs of the good he is making, as he is not an expert in every environmental topic. As for the “political principle,” there is always a party that is not satisfied, whether it is the stockholders, the customers, or the employees.
Hence, these businesses use social responsibility as a cloak to avoid corporate taxes or to just generate goodwill. Consequently, Friedman’s idea was that a political mechanism should manage the doctrine of social responsibility because that is the appropriate way to manage the resources, thus adopting a socialist view. At the same time, he denied that the political mechanism is slow, so business leaders should take serious action but not solely for reputation or competitive advantage.
On the other hand, others argued that businesses do have more significant social ends. Nowadays, companies care more about the community and tackle more issues from women’s rights to climate change. For instance, many international approaches have been made to hold companies accountable for their environmental actions. If we take Ford Motor Company, the company has been trying to take action to reduce CO2 emissions and wastes, stating that they “Work with selected suppliers to reduce our collective environmental footprint, by encouraging target setting and sharing best practices for reducing energy and water use, CO2 emissions and waste” (Ford Media Center, 2019). They are also trying to make their vehicles as eco-friendly as possible, for 80% of its Focus and Escape vehicles are recyclable. Moreover, Nike encouraged 650 of its suppliers in 52 countries to abide by their environmental policies as it started using recyclable polyester. Recently, the famous football club FC Barcelona’s home jersey, which Nike sponsors, is made from 100% recycled bottles. Coca-Cola also planned to reduce up to 25% of CO2 emissions since it previously contributed to the world’s secretion of 3.7 million metric tons of greenhouse gases.
Friedman published this essay on September 13, 1970, in the New York Times Magazine. More than 50 years later, did his ideology stand the test of time? Are companies engaging more in CSR out of convenience since more money is on the line, or is it because they genuinely understand the harmful impact of their actions on society?