Possible Empirical Support for Corporate Social Responsibility: What Would Uncle Milty Say?
Milton Friedman is famous (or infamous depending on to whom you talk) for many things including the position he takes in The Social Responsibility of Business is to Increase its Profits. In that article he asserts that corporate social responsibility is
a “fundamentally subversive doctrine” in a free society, and  that in such a society, “there is one and only one social responsibility of business–to use it resources and engage in activities designed to increase its profits 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.”
Yet along comes McKinsey & Co., not exactly a bastion of socialism, and asserts “The case for incorporating an awareness of social and political trends into corporate strategy has become overwhelming.” (the full article is available only to subscribers, sorry). McKinsey conducted a survey that found “Eighty-four percent of the executives from around the world who participated in a McKinsey survey agreed that their companies should pursue not only shareholder value but also broader contributions to the public good.” Could it be that these executives wish to offer, in Friedman ’s words, “hypocritical window-dressing” because “our institutions, and the attitudes of the public make it in their self-interest to cloak their actions in this way”? Or are the executives simply acting in congruence with Freidman’s observation that that it may be in a corporation’s interest “to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest.”
McKinsey’s analysis notes that corporations must be aware of changes “social and political trends” as they will impact the social contract in place. In other words, ideas and views that previously were on the fringe, or frontier in McKinsey-speak, such as who is responsible for obesity or smoking problems may move to the core of the social contract and impact the corporation through regulation and lawsuits. The article then lauds CEOs who are at the forefront of addressing how the corporation handles global warming or health care. Yet, Friedman’s article seems to warn against this approach when he describes calls by corporate executives for government to affect a given policy as ill-conceived because “the external forces that curb the market will not be the social consciences, however highly developed, of the pontificating executives; it will be the iron fist of Government bureaucrats.”
Although McKinsey seems to argue that corporations follow shifts in “social and political trends” so that they can anticipate and affect the debate in their favor to curtail government regulation or influence regulation if it does come, Friedman still seems to deny this approach as good. He asserts “[T]he doctrine of ‘social responsibility’ taken seriously would extend the scope of the political mechanism to every human activity. It does not differ in philosophy from the most explicitly collectivist doctrine. It differs only by professing to believe that collectivist ends can be attained without collectivist means.”
So are McKinsey and its surveyed executives better informed or just misguided?
PS Note that Sony’s rootkit woes which arguably stem from a failure to anticipate the impact of consumers’ privacy views (a topic that the McKinsey study explicitly warned about) continue.