The purpose of business in a free society
What responsibility does business have to society?
Nobel prize recipient Milton Friedman and others have argued that a corporation’s purpose is to maximize returns to its shareholders, and that since only people can have social responsibilities, corporations are only responsible to their shareholders and not to society as a whole. Others have gone so far as to say that the role of business is to abolish poverty.
These ideas are colliding as we witness and debate the role of government in solving economic conditions and the role of business in influencing government policy. It seems that, if nothing else, both big business and government are losing the trust of the people as the roles of business and government are considered.
Many businesses embrace the idea of social responsibility and even have formalized corporate social responsibility statements.
State Farm Insurance, for example, states on the “Corporate Responsibility” section of its website that its mission is “… to help people manage the risks of everyday life, recover from the unexpected and realize their dreams. We achieve our mission through the products and services we offer, as well as through our involvement in and commitment to the community. We make it our business to be like a good neighbor, helping to improve the quality of life in the communities where our associates live and work.”
Whole Foods Market Inc. has a corporate values statement that reads in part, “…Our team members are part of the local community and they are passionate about supporting the local causes that are important to our shoppers and neighbors.” The company reports that its community giving exceeds five percent of net profits each year. Its CEO, John Mackey, is a good study in the area of corporate responsibility. By the way, his Aug. 11, 2009 opinion article in the Wall Street Journal titled “The Whole Foods Alternative to ObamaCare” offers a good insight on how being socially responsible is not the same as supporting government social programs.
Whole Foods is perhaps the best example of the argument that being socially responsible is good for business and actually results in increased profit and value for its shareholders. And that speaking out for or against government policies does not harm the profits of a good business. Since Mackey’s article, Whole Foods stock price has gone from just under $20 per share to almost $40 per share.
So, these days, we are witnessing an interesting blend of corporate social responsibility and business involvement in government policy. For example, most corporate social responsibility statements have an inclusion about the environment. And being environmentally responsible form a corporate standpoint means being involved in government policy as well as encouraging environmentally friendly actions on a personal basis.
But wait. What would that great profiteer and icon of American business, Henry Ford, say about corporate social responsibility? In a fascinating article titled “Toward Abolishing Poverty,” in the Aug. 16, 1930, issue of The Saturday Evening Post, Ford and his co-author Samuel Crowther wrote about the role of government and business, especially government’s role in boom and bust cycles. Ford states, “One of these days I hope the politicians will cease making capital out of business conditions. They will not cease doing so, however, until the leaders of business cease trying to gain what they imagine to be business advantages through the aid of politicians.”
Ford’s hope has obviously not become reality some 80 years later. Indeed, most agree that it is worse than ever. Special interests of business have an undue effect on legislation, while Congress and government agencies use business conditions as the excuse for implementing social policy that could not have been put into effect under normal business conditions. In the article mentioned above, Ford discusses the larger role of American business as follows:
The abolishing of poverty is, as far as I am concerned, the only end of business which is worth considering. It is from this point of view, and only from this one, that we can see the futility of selfish competition and the utter fallacy of the profit motive. Once we see the ultimate purpose of business as a factor of life of man, we are through with all the twiddling fancies that formally passed for business wisdom. The abolishing of poverty is the only legitimate purpose of business, and its accomplishment is not an impossibility unless we imagine that it can be done all at once by edict.
In summary, each individual business must determine its own approach to social responsibility and its attempt at influencing government policy. For some businesses, an active involvement in social concerns is good for the bottom line. For others, the best thing they can do is market their products and services and leave social concerns to others. Every company is free to pursue its own social agenda. Whether that results in greater profits is not the same for every company. Some consumers intentionally do business with companies that support certain social concerns. Some consumers merely want the best product or service at the lowest price without regard to what a company’s social policies might be. And that is the beauty of America. As the title of one of Milton Friedman’s books says, we are “Free to Choose.”
Phil Hardwick is coordinator of capacity development at the John C. Stennis Institute of Government. Contact him at email@example.com.
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