Friedman's thesis gives us the single social responsibility of business, and it gives us a set of side-constraints, but we still need to see some justification for his thesis. It is a pretty radical one, after all. It makes a business much different from the rest of us. It removes the social responsibilities that the rest of us have, and it replaces them with a single requirement to increase profits. We should ask two questions:
- Why only one responsibility?
- Why this one responsibility?
Friedman's answer to these questions paints a picture of the CEO (or manager or whoever is in charge of a business) that is different from the one that might easily come to mind. These managers are the "guy at the top." They're often viewed as the most powerful individual in the business, and the business does what they tell it to. Friedman points out that this is only one of the roles that the CEO fills.
Every CEO plays at least two roles. The first role is the CEO as a citizen. In their role as a citizen, they are no different from the rest of us. They have any of the social responsibilities that the rest of us might have. They can give their personal money and time to whatever charities they please. They are free, as a citizen, to respond to the problems and needs of society as they see fit.
The other roll of the CEO is the CEO as the CEO of a business. In this role, they are really only an employee of the company. They are, perhaps, the most powerful employee, but they're still only an employee. Many Americans have grown up thinking of the CEO as some kind of all-powerful master of the company that they lead, but Friedman is pointing out the fact that the CEO has a boss. Their boss is the conglomeration of all the stockholders in the company. They have given him his position in the company, and the capital that he will use to operate the company, and they expect something in return. In effect, each stockholder is an individual boss whose wishes must be respected. The average corporation has too many of these bosses to ask each one of them what they want done with their little bits of the company, and so we make a broad assumption. That assumption is that when a person buys stock (and therefore owns a bit of the company) they want the CEO to use their money to make the company more profitable, and thus make more money for the stockholders. Essentially, this is the mission of the CEO. Stockholders demand that he increase profits so that they can receive a return on their investment, and the CEO must do so.
As an employee, the CEO is responsible to the owners of the company (the shareholders). Friedman argues that the CEO has the same responsibility to his bosses that we have all had to ours: do what they want you to do. If they don't, then they are liable to being replaced in their job just like we are.
The CEO's position is really the impetus behind Friedman's argument for limited social responsibility. There are three parts to this argument.
First, if the CEO were to be obligated by responsibilities beyond increasing profits he would, at some point, be forced to act in ways that ran contrary to his employer's wishes. He would have to spend the company's money and time in ways that are not conducive to the one demand of his employers: "Make me more money." Saving the whales might be a worthy social responsibility, and it might be one that the CEO can respond to in his role as a citizen, but the CEO must not use company resources to do so because it would violate his boss' wishes.
Secondly, the CEO is an employee who is hired because she has a special, and specific set of skills. Those skills are focused on running a profitable company. They might be very intelligent individuals, but they are not hired for their abilities to address social responsibilities. The problem here is one of consequences. A CEO has a great deal of power in the form of money and infrastructure. They are capable of quickly addressing problems that they see, but if those problems are outside of their expertise, then they might take actions with far-reaching and unpredictable consequences for society. It would be best for them to stick to business, says Friedman, and leave the social responsibilities to those with the expertise.
This brings us to the third part of the argument. The people with the expertise, and the license, to address social issues are civil servants. These are the people who are hired (through elections and appointments) to respond to social responsibilities. In fact, according to Friedman, CEOs should not be allowed to contribute to social causes because they are imposing a tax and deciding where that tax money will end up. The idea is that when a business wishes to respond to social obligations they must spend company money to do so. They must still make a profit if they are to stay in business, so if they're spending company money on a cause they will need to find that money in the business. It could come from an increase in the price of their product. This is a tax on the consumer. They could offset the expenditure by offering lower wages to their employees or few benefits. This is a tax on their employees. They could offset the expenditure by paying fewer dividends to their stockholders. That would be a tax on the stockholders.
Any of these actions are illicit. The CEO is not authorized to institute a tax and decide where that money will be spent. That is what civil servants (like elected representatives) are for.
In thinking about this argument, we might think of the old saw:
"A place for everything, and everything in its place."
The leader of a business should stick to the job that they were hired for (running the business) and leave the other tasks (saving the whales) to the appropriate parties (citizens or governments).
All of this seems simple enough, but it does seem to leave something out. Corporations, and other businesses, are run by people. People have obligations to society. It sure seems odd that a group of persons is exempt from (or prohibited from) those obligations.
There is a competing theory called "Stakeholder Theory," and your next reading in this module will be Ed Freeman's explanation and defense of that view.