Home > Business, MBA > Against Milton Friedman: The Argument for Corporate Social Responsibility

Against Milton Friedman: The Argument for Corporate Social Responsibility

Corporate Social Responsibility (CSR) has been considered for a long time a trend that arrived when Generation X entered the workforce and became a stronger consumer presence in corporate America. Arguments about the role of business in society have raged as companies subscribe to looking at methods to minimise the need for CSR or for ways to turn social responsibility in to a factor of profit making. Whilst some believe that CSR is a distraction that stops businesses performing to their potential and crippling the economy, I firmly believe that an effective CSR policy, coupled with efficient marketing and business strategy could help a business grow to larger profits whilst also benefitting society at large.

Milton Friedman is one of the architects of the movement against social responsibility, writing what is considered by many the seminal piece of work disparaging CSR and the businesses who promoting their CSR credentials, saying,

“Businessmen who talk this way are unwitting puppets of intellectual forces that have been undermining the basis of a free society these past decades.”

(Friedman, 1970, p1)

Friedman’s general belief was that only people can have responsibilities, not businesses, and the people who are hired by business owners have a responsibility primarily to their employers, to meet their desires which in most cases are profits. Friedman recognises that an individual can have perceived responsibilities in areas away from the business, but says of this:

“If we wish we can refer to some of these responsibilities as ‘social responsibilities.’ But in these respects he is acting as a principal not an agent; he is spending his own money or time or energy, not the money of his employers or the time and energy he has contracted to devote to their purposes. If these are ‘social responsibilities,’ they are the social responsibilities of the individual, not the business.”

(Friedman, 1970, p2)

Friedman’s method is to de-assemble the personification of businesses in to individual businessmen and to instead present them as what he believes they are; collectives of individuals who are paid to work at the bidding of the owners. Therefore, the employees should be solely motivated to fulfil their responsibility to create profit for the owners and not to be concerned as to whether their role in the firm is benefiting society or not. One could almost argue that Friedman is saying that those with the desire to work with a social conscience have no place in the free market.

Whilst I would agree there is an amount of sense in this argument, I cannot help feel that Friedman’s understanding of CSR is too narrow, focused purely on the business and its role in a free market and has become most definitely outdated for the contemporary culture. He makes valid points during his deconstruction of the personification of a business, however he forgets the main attribute that is CSR’s strength and that is the will of the general public. He may see the business in the factual manner of which he presented; employees lined up to work for the owner’s benefit, but the public do not. They view the company as a whole representative and if one man’s mistake leads to an error is social judgement, the public will judge the whole company, not just the one man. It has been proven time and again whilst CSR has yet to be harnessed to create a significant positive difference to profits, a negative policy can destroy profits, as Russell-Walling (2007) reveals:

“Footwear mogul Nike is still dealing with the backlash of a UK-instigated campaign that accused it of employing child labour in developing countries. It responded proactively with a rigorous CSR initiative, including the appointment of a director of sustainable development. In many markets, its reputation has been restored. In a recent survey of most ‘ethical’ brands by country, however, Nike did not appear anywhere in the UK ranking.”

(Russell-Walling, 2007, p. 47)

Nike’s issues stemmed from an individual agent working in a manner that Friedman would support. The manager chose to work in a country where child labour was acceptable, or at least possible, so that costs could be reduced and Nike to increase profits. Unfortunately, when this information went public, the individual was not blamed. Instead the company as a whole was considered irresponsible. This effected the reputation and led to a boycott of the products. Were anyone to ask Friedman what he would have done, I can be sure the CSR initiatives would be low on the list if on the list at all, yet it seemed that those initiatives that Friedman disliked so much, were the only viable methods of regaining trust from the public. Friedman’s mistake, in my view, is that he separated the public from customers in his evaluation, not understanding how much the customer base of a company can be influenced by the wider public.

Drucker (1992) believes that one of Friedman’s main focal points, that a business should be focused on increasing its profits to benefit a society best, is also a shallow evaluation of the business’ responsibilities, saying,

“Economic performance is the first responsibility of a business. A business that does not show a profit at least equal to its cost of capital is socially irresponsible. It wastes society’s resources…But economic performance is not the sole responsibility of a business…Power must always be balanced by responsibility; otherwise it becomes tyranny.”

(Drucker, 1992, p. 101)

It’s clear that those that believe in CSR as a strategy, like Drucker and Russell-Walling, also believe in the profitability espoused by Friedman. But what is the best strategy to ensure profitability through a CSR strategy? Jobber (2005) believes that the most effective CSR strategy is marketing based, as table 6.1 detailing Jobbers dimensions of corporate social responsibility shows, below. However, he does understand that marketing is the sole answer, saying:

“An important point to realize is that the key issues relating to each CSR dimension are not all exclusively marketing related. For example, pollution control at a chemical plant is a production-related issue, standard setting for supplies is a procurement-related topic, and the setting of fair pay is a human resources issue. Nevertheless, for most of the issues listed in [Table 1] marketing practices can affect outcomes.”

(Jobber, 2006, p. 203)

Table 1 – Dimensions of corporate social responsibility (Jobber, 2006, p. 204)

Jobber is correct in showing the importance of marketing to making a CSR strategy profitable, however Peloza and Falkenburg (2009) believe that Jobber’s solution, like many others before and after it, does not go far enough and a much more encompassing analysis of CSR policy is required so that a better solution can be found, stating,

“The lack of a conclusive business case for corporate social responsibility is at the heart of the ongoing debate over the role of business in solving social and environmental problems. Although the link between CSR activities and firm financial performance is still debated, research suggests that the relationship depends, at least in part, on how the CSR initiative is executed

(Peloza and Falkenburg, 2009, p.1)

Seeing the need for a case study analysing the subject in depth, Peloza and Falkenburg noticed that modern CSR strategies can form in one of four ways:

  • Single company/single NGO
  • Multi-company/single NGO
  • Single company/multi-NGO
  • Multi-company/multi-NGO

This then lead to creating a matrix which detailed the objectives and considerations of each strategy, detailed in Table 2, below.

Table 2 – Strategic Factors for CSR Collaboration Strategies (Peloza and Falkenburg, 2009, p.1)

With this matrix, it can bee seen that there is no template to creating the right CSR strategy. An analysis of the situation, the environment and possible collaboration must be undertaken prior to looking at any possible strategies. For example, Nike were not the only company to suffer exposes surrounding poor labour conditions, so joined with international labour federations and other clothing companies with similar issues to create a strategy that helped recover their image worldwide. This was the best strategy for Nike as it could be made to appear that they were driving the industry to finding a solution and, more importantly, there was less chance of the solution looking like a guilty re-action if they joined a multi-company strategy. If there was a perception made that the move was guilt-fuelled, linking up with a range of NGOs appears that Nike are taking their social responsibility seriously and could be considered by many as suitable redemption.

Unfortunately for Milton Friedman, corporate social responsibility has lasted long enough to no longer be considered a trend but a fully fledged strategy integral to a business that wishes to succeed in the contemporary socio-economic climate. Where it is widely believed that Karl Marx’s greatest mistake was discounting the natural human instinct of greed, Milton Friedman’s appears to have discounted the natural human need to survive by sticking with the herd. Had he understood that, perhaps he could have explored the opportunities that CSR presented in helping a company create solutions to social issues without affecting its profit performance, rather than trying to stifle the growth of one of the most important business strategies of the late 20th Century.


Bibliography

Drucker, P.F. (1993) Post-Capitalist Society. New York, HarperCollins

Friedman, M. (1970) The Social Responsibility of Business is to Increase its Profits. New York. The New York Times Company.

Jobber, D. (2007) Principles and Practices of Marketing, 5th Edition. Berkshire, McGraw-Hill.

Pelza, J. and Falkenburg, L. (2009) The Role of Collaboration in Achieving Corporate Social Responsibility Objectives. Berkley, University of California Press

Russell-Walling, E. (2007) 50 Management Ideas You Really Need to Know. London, Quercus.

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  1. October 17, 2009 at 9:49 pm | #1

    JPMorgan and Goldman bonuses and risk-taking (i.e., ignoring the society’s criticism regarding the financial crisis) may be a counterexample to the importance of CSR in business. I just posted on this example, in case you are interested.

    Nice post!

  2. Amaje endurance kizito
    April 12, 2013 at 10:31 pm | #2

    Friedman points against csr are agreed terms social responsibility

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