Do We Want Corporations to Be Society’s Moral Referees?

The New York Times is observing the 50th anniversary of Milton Friedman’s famous article “The Social Responsibility of Business Is to Increase Its Profits” this week by inviting 22 experts to react via an online symposium. Most of the commentary, with a couple of notable exceptions, is pretty negative, but the diversity of criticism itself only reinforces one of Friedman’s most important points. Everyone wants corporations to do the “right” thing, but it turns out we no more agree on what is right in corporate life than we do in political life.

Friedman’s basic argument was that corporations should focus on providing goods and services to customers, thereby providing profits to their owners—the shareholders. This is the expectation that investors signed up for when they bought their shares, and it’s the responsibility of the firm’s board and managers until instructed otherwise. Putting company time and money toward other goals—even sympathetic ones like helping the homeless, saving the rainforest, or supporting the local opera company—takes away from the primary goal of delivering profits.

But, we are reminded, some people—including some shareholders of any given corporation—want to help the homeless, save the rainforest, and support the local opera company. That’s fine, Friedman said. Those people can donate the profits they’ve earned from their own investments to any cause they want, but the firm’s managers shouldn’t donate everyone else’s money to causes chosen by the managers.

That’s straightforward enough, but it’s not just a matter of cash donations to charitable causes. The same logic applies to the time, effort, and resources a company expends internally in support of the full range of potential social goals. No company can support every imaginable activist or charitable cause, so inevitably some will be left out. That will certainly cause conflict in the company’s “extended stakeholder” community, and lead to a perpetual lobbying effort between, for example, the homeless shelter and the women’s shelter over which facility is more deserving of the firm’s social advocacy largesse, staff volunteer hours, and public relations support.

But even that is ultimately a simple problem. You can always split your company’s staff time between multiple social campaigns, even if that makes each commitment a little shallow. Much more difficult is deciding which causes are actually good to begin with. That women’s shelter down the street may sound sympathetic, but you could get an angry crown of feminist protestors in front of your company’s building when they realize that it is operated by a pro-life group that provides pregnancy counseling but not abortion. Ditto, in reverse, to supporting the local chapter of Planned Parenthood.

Suppose, though, you decide to support a wildlife protection plan—no one could be upset about that, right? If it involves hunting or fishing restrictions on a commercially valuable species, you bet people will be upset. You’ve just put a fifth-generation fishing captain out of business and devastated a coastal community. But what if you offer your employees special discounts for getting fit and losing weight? Who could oppose better health outcomes? Maybe no one, but you’ll still be on the receiving end of a hostile workplace complaint from workers who feel body-shamed for the fatphobic and ableist way the program is structured.

Each of these decisions—and many more—aren’t simply “good” things that every company should be doing. They might be good ideas in some cases and will likely be terrible decisions in others. But the proponents of environmental, social and governance (ESG) theory, by which corporations are subject to an ever-expanding list of ethical requirements, would have us believe that every company should jump on to endorse every item on the list of ostensibly enlightened policies that they’ve drawn up. But most of the items on that list are either highly controversial or likely to have unpleasant second-order effects on yet other stakeholders.

Virtue, like beauty, is in the eye of the beholder. Any company that thinks it can check all of the right boxes on an activist-generated list of social issues without inviting backlash and controversy will quickly receive a lesson in the Friedmanite wisdom of focusing on profits rather than politics.