The Wall Street Journal had a story last week about the risks corporate CEO face when they try to be a “socially responsible” business.
From the story:
Many corporate chieftains argue that companies shouldn’t only seek to be money-making enterprises; they should also be good corporate citizens. From Starbucks Corp. Chairman Howard Schultz to Unilever PLC Chief Executive Paul Polman, leaders variously promote efforts to reduce their company’s carbon footprints, work with sustainable suppliers and produce healthier or more eco-friendly products—both as a marketing tool and business model.
But a new study shows that socially responsible initiatives can be a double-edged sword for CEOs, helping to shield them from being ousted during more prosperous times but increasing the likelihood they would be fired in bad times.
While it is natural to expect that CEOs will be fired when their company does not do well and that they will remain in their position when the company does well, the research shows that social responsibility increases the likelihood of each outcome.
I’m a proponent of businesses focusing on more than just profits, that companies do have a social responsibility. I realize there are diferent perspectives on this issue, and it is a topic we discuss in my Intro to Business course.
I have my students read Milton Friedman’s famous “The Social Responsibility of Business is to Increase its Profits” which appeared in the New York Times Magazine in 1970. Friedman is a Nobel Prize winning economist, and so his opinion carries a lot of weight. However, I couldn’t disagree more with his opinion on the issue.
Friedman believed that the only responsibility of a business is to increase profits on behalf of the stockholders. Any form of social responsibility is viewed as harmful to the shareholders, and thus should be avoided.
I also have my students read an interesting 2005 debate between Friedman and John Mackey (CEO of Whole Foods) on this topic. Friedman still argues against social responsibility, whereas Mackey (in my opinion), offers a more enlightened perspective on what the responsibilities of companies should be. Macey refers to this as “conscious capitalism”.
Others have espoused ideas similar to Mackey. For example, Bill Gates talks about the notion of “creative capitalism“, while Salesforce CEO Marc Benioff refers to “compassionate capitalism” and investor Paul Tudor Jones uses the phrase “just capital“.
To me, the arguments in favor of a “socially responsible” approach to running a business are so much more convincing than the arguments Friedman makes. (I also realize that there could be some confirmation bias going on here; that I’m just looking for support for my opinion, and ignoring anything that may go against my beliefs, but hey, we’re all human…)
While I want my students to be aware of what the arguments are in favor of each side of the issue, I let them know where I stand on the issue. I also encourage them to form their own opinion on the issue, reminding them that Friedman was Nobel prize wining economist, so you can’t just completely discount what he has to say on the topic.
My sense, from having this discussion with my students for several years, is that the students are overwhelmingly in support of companies taking on social responsibilities.
So given my beliefs, and the apparent belief of most of mys students, I guess I got complacent and jstu thought that’s how most people thought.
Well once again, I found out that there are people who think dramtically different than I do. This came out, like it usually does, in the comments to the WSJ article refereced above.
Here are some of those comments:
- Companies are supposed to be running BUSINESSES. They are supposed to generate profits they use to pay their employees and shareholders who then go out in the world and do good. Companies that they think they are supposed to be in the social engineering business are taking their eye off the ball.
- Personally, I believe that the only social cause that falls under the purview of a public company is remaining sustainable so that some people can have work, while others can obtain what they need or want.
- It is always easy to spend someone else’s money. When a CEO expends corporate funds to “do good”, whatever that means at the exact time he does the action, he is spending the shareholder’s money. If he feels so strongly, he should spend his own money and allow the shareholders to spend the larger dividends as they see fit.
- In other words: “It’s a shame to have stewardship over other people’s assets and not use them to make myself feel good.”
- Always good to know when a CEO cares more about his “personal mission” than doing his actual job.
- By law, as an officer (and usually director too), a CEO’s job is to deliver shareholder value within the framework of law and regulation and ethical behavior. I believe boards should look critically at any CEO who tries to use their company as a platform for their own social biases.
- So called “social justice” shares an extremely thin line with leftist politics.
- Let them spend their own money on “doing good” which, like beauty, is in the eye of the beholder.
In fact, of the 25 plus comments posted after the article, I could only find one that really came out in support of corporate responsibility; the vast majority, as indicated by the comments above, were much more in line with Friedman’s beliefs.
So reading those comments really threw me for a loop. As I mentioned, given y experience in the classroom, I just assumed that the vast majority of people believed what I did, that corporate social responsibility is a good thing. But then when I read such comments I realized that is not the case, and in fact I may be in the minority with my beliefs.
But I’m comfortable with my opinion.
Perhaps my biggest takeaway for me from all of this is the power of reading. In particular the value of reading material that may not share your opinion on a topic. It’s always good to know why someone feels differently than you do, since that can only help you have a more informed opinion. It doesn’t mean that you will necessarily change your mind on an issue, but it does make you think more intelligently about your beliefs and assumptions.
And that’s a good thing.