Monday, April 23, 2007

Corporate Social Responsibility

In response to a post on Crikey I had something to say on the topic.

The original post appeared under the heading "Corporate Social Responsibility: Milton Friedman right again" and pursued the typical line that if corporate execs wanted to give money to good causes they should give their own money, not that of their shareholders - a position advanced by the late Milton Friedman.

Corporate Social Responsibility is about one heck of a lot more than just good works and donations to the poor. It is, primarily, a recognition that everybody is a stakeholder in the business - customers, its neighbours, the communities in which it trades, the environment it possibly pollutes, its employees, their families - not just the shareholders (are you listening Sol Trujillo).

Individual charity largesse by the rich managers is not a substitute for the genuine concern for the sustainability of the business versus the desire to achieve this quarter's targets to get paid the bonuses that got constructed because Milton Friedman wanted to align the supposed interests of managers with the supposed interests of shareholders.

Perhaps someone has noticed the conundrum - the goal of managers is supposed to be to maximise profit which requires minimising all input costs, which must include shareholders returns, but the goal of management is to maximise shareholders returns. If the conclusion is both P and not P, then the premise is false.

As to the original post - the heading should have been "Milton Friedman wrong again" as he WAS with monetarism - no one targets money supply these days.

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