Profit Maximization, Corporate Social Responsibility As

The claim that the social responsibility of business is to increase its profits is associated with the late Milton Friedman and is the title of a famous article he published in 1970. The article is a devastating critique of the popular idea that corporations have social responsibilities that trump profit maximization. It has proved to be prophetic. The article was written, as it states, against a background of “widespread aversion to ‘capitalism,' ‘profits,' [and] the ‘soulless corporation.'” At the time, Friedman further noted, managers would often disguise actions that were really intended to increase profits in the cloak of corporate social responsibility (CSR). But today, in a remarkable reversal, Friedman's doctrine of shareholder value is triumphant, and managers often use the rhetoric of profit maximization as a cloak for actions that are, in part at least, really driven by considerations of CSR.

The doctrine of CSR teaches that corporations have responsibilities to promote certain social goals, even at the expense of their own profitability. CSR requires more than simply playing by the rules—that is, engaging in free and open competition without deception or fraud. It imposes on corporations affirmative obligations to play their part in solving social problems and righting social wrongs. At the time the article was written, corporations were exhorted to help fight inflation and high unemployment among inner-city youth. Today, corporations are urged to combat global warming, help solve the AIDS crisis, alleviate poverty at home and abroad, and much more.

The argument of Friedman's article is actually less a case for profit maximization than it is a demolition of the case for CSR. And Friedman's position is more complex and nuanced than is suggested by the polemical title of his article. The critical passage in his article is as follows:

It is apparent that Friedman's objection to CSR is not that it leads to spending money on social goals but that it does so without the consent of a corporation's owners. Managers have accepted a fiduciary obligation to manage the corporation in accordance with the desires of its owners, and CSR would permit or require them to violate that obligation. As Friedman notes, things would be quite different if the managers had promised something else. If a group of people established a corporation for a charitable purpose, such as building a hospital or a school, then the manager of that corporation would have a fiduciary duty to carry out that objective.

It is also an entirely different matter, Friedman says, if the manager chooses to devote some of his own money or time or energy to help achieve a social objective, because in that case “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 or energy he has contracted to devote to their purposes.” If managers disagree with a corporation's priorities, then of course they are free to “refuse to work for particular corporations.”

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