Muzi Kuzwayo and I share Board Positions at Project Literacy--one of South Africa's longest running and most respected non-profits. In one sense, we also share backgrounds; both mutated from successful careers in the advertising world. But Muzi is an author and professor and speaks out from time to time in newspaper columns on topics that rile him up. Recently he touched on the role of corporate social responsibility versus government in moving things positively forward here in South Africa...a topic close to mat©hboxology's heart. I told him to quit quoting old fashioned economists...
Muzi...The notion that the pursuit of profit as the primary and sole motivation of a corporation DOES NOT automatically require decisionmaking to aggressively ignore the corporation's social development opportunities. Maybe in the 50's and 60's it did but those arguments are as dead as fax technology today. In fact, our world is becoming more and more transparent and today's leaders face the increasing challenge of no longer being able to manage by control of information. the business era of monologue is replaced by a world filled with customers and citizens IN dialogue. The way I see it, a positive social footprint is one of the highest priority requirements for profit sustainability in the corporation of the future.
I'm not the only one who feels this way. Read this excerpt from Scott Cooney with hopes it inspires your next column!
Milton Friedman, a modern disciple of Adam Smith, is now often championed by conservatives for furthering Smith’s line of thinking, with perhaps his most famous quote underscoring the concept of the social responsibility of business from a conservative point of view:
“There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.”
It’s a line that is often repeated by conservatives as a defense against claims that companies should be doing more. The challenges with this line of thinking, of course, is that single-minded focus on profit maximization is what led to the creation of bundled mortgage backed securities that led to the housing bubble that virtually melted down the global economy in 2008 (and realistically, to pretty much every speculative bubble in economic history). Friedman did eventually go on to add, “So long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” And of course, deception and fraud can be defined in many ways. (Friedman was also fervently against privatization of jails and openly supportive of the legalization of drugs, which is often overlooked by conservatives).
The main challenge to this Smith-Friedman version of reality is that it can never be so simple.
Corporations doing business create side effects, and if they are not responsible for those side effects, the whole free market system breaks down. It’s factory farms using antibiotics for their own gain (faster fattening of animals to bring to market) and causing antibiotic resistant bacteria that is now a public menace. It’spesticide use that is killing honeybees and causing a decline in pollination for other farmers. It’s coal plants that produce mercury emissions and cause birth defects and respiratory ailments. The list can go on and on and on.
Smith, to his credit, at least acknowledged it. Joseph Stiglitz, a modern Nobel Prize winning Economist, said, “Whenever there are externalities–where the actions of an individual have impacts on others for which they do not pay, or for which they are not compensated–markets will not work well.”
Conversely, Friedman, according to the otherwise conservative Motley Fool Stock Advisor, had it dead wrongwith his quote on profit being the only social responsibility of business. The Fool suggests that, as opposed to Friedman’s singular vision, investors take the long view, rather than focusing on quarterly reports, in part because quarterly reports give companies incentives to finagle and fudge on their responsibility to society for openness, corporate citizenship, and well, social responsibility.