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Corporate Governance

Social responsibility matters to business – A different view from Milton Friedman from 50 years ago

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In 1970, Milton Friedman, the Nobel Prize-winning economist, expressed his views against businesses (Fortune, December 14, 2015 ) Capitalism and Freedom and then again in a widely circulated article in The New York Times from 1970, entitled, “The Social Responsibility of Business is to Increase Profits.” The ideas from both the book and the article became known collectively as the Friedman doctrine.

Neal Hartman, Senior Lecturer in Managerial Communication, MIT Sloan

Friedman argued that returning value to shareholders was the primary responsibility of business and suggested that “Greed is Good.” Shareholders, of course, could invest their money in whatever causes they desired, but Friedman believed companies should focus their own efforts on creating value for shareholders. By returning value to shareholders, the shareholders could then make their own decisions about how to uphold their own social values.

Corporate spending on social matters, Friedman argued, was essentially simply spending someone else’s money—in this case the shareholders money—on something the shareholders did not necessarily agree to purchase. As a doctrine, this thinking shaped much of the hyper charged deal making of the 1980s and much of the corporate world’s intense focus on shareholder value as a measure of performance in the decades since these ideas were first published.

Yet some 50 years later companies are focusing more, not less, on issues of social responsibility, tackling such areas as the environment, climate change, income disparity, women’s rights, and racial justice and are involved in local community, national and international levels on these topics. Some of this activism is driven by consumers and shareholders, while at other companies, CEOs are leading the charge. Many businesses are working to improve a number of social issues. TOMS, the shoe company, traditionally gives one-third of its net profits to charities that work with mental and physical health along with supporting various educational opportunities. Recently, TOMS has targeted their giving to COVID-19 related needs. (TOMS 2019 Global Impact Report) Starbucks instituted a socially responsible hiring process to promote diversity in their workforce. (Starbucks 2019 Global Social Impact Report)

Corporate social responsibility is good for business

What’s behind the change in focus at top corporations? Companies standing for socially responsible change now recognize that embracing socially responsible principles can attract new customers and retain old customers. Some customers are willing to pay a higher price when they know part of the profits will support causes that they believe in. (Nielsen Global Survey on Corporate Social Responsibility) With his work on producing electric-powered automobiles and a host of green auto products, Elon Musk, CEO of Tesla, has brought significant numbers of consumers who are concerned about the environment to his brand. Google’s CEO, Sundar Pichai, speaks out on social issues and stood up to Donald Trump when he made anti-Muslim statements. Pichai strongly denounced Trump and his plan to stop Muslim immigration into the United States. (Fortune, December 14, 2015) Google has also supported a number of renewable energy projects around the world. The focus on the environment and renewable energy have bolstered the brand images of these companies. If we consider that branding involves using corporate social responsibility to show how one company is unique from its competitors, Google does this well with its Google Green Project (Google Green Project) that indicates Google builds technology that helps people do more for the planet.

Social responsibility programs that are a clear part of a company’s culture can also improve employee morale and lead to greater productivity. (Aperian Global). The #metoo movement has prompted companies to take strong stands against discrimination and workplace harassment. Employees are demanding a workplace environment that is comfortable and open to everyone. Ford and Johnson & Johnson provide two examples of companies that have fostered corporate cultures of inclusivity. (Aperian Global).

Millennials and Gen Z are making an impact and driving change

Recent research for example has shown that companies that have significant social responsibility programs can attract attract motivated employees—especially the much sought Millennials. Millennials and Generation Z strongly believe that companies should be investing in finding solutions to improve the world. Millennials and Generation Z support companies that offer employees time to volunteers in their communities. And I predict that in the future these two groups will drive companies to take an even more active role in fighting social injustice and factors that have a negative effect on the environment.

In a recent Nielsen study, for example, 85 percent of Millennials report it is extremely important or very important that companies implement programs that will improve the environment, while 75 percent state they would definitely or probably change their purchasing habits to reduce their impact on the environment. This takes on increasing significance when we understand that Millennials will comprise nearly 75 percent of workers in the United States by 2025.

And the Deloitte Global Millennial Survey 2020 found that Gen Z and Millennials stated they will make special efforts to more actively patronize and support businesses – including small businesses – where stated and practiced values align with their own regarding social responsibility.

Looking forward to the future

Friedman argued that it is the government’s responsibility to tackle social responsibility issues. He probably could not imagine that 50 years later the United States would have a president who is more interested in creating needs for social responsibility than for working toward solutions. The record of the Administration from 2017-2020 in Washington is abysmal on issues of the environment, climate change, income disparity, and racial injustice, to name only a few. What government does during the next four years remains to be seen. Now, perhaps more than ever before, businesses must step up to create socially and environmentally responsible investments, reduce their carbon footprints, improve corporate policies regarding worker safety and income equality, stand up against discrimination, and increase volunteer opportunities and charitable contributions. Corporate social responsibility is good for the environment, for social justice and equity, for employees and shareholders, and for the brand and profitability. It is a win-win across the board.

Neal A. Hartman is a Senior Lecturer and Group Head of Managerial Communication/MIT Sloan School of Management

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