Today, social responsibility is one of the most common concepts in the realm of public service as well as private investments. However, it remains controversial in terms of application. For instance, there is ongoing debate concerning whether some organizations are more obligated – than others – to practice social responsibility. In this instance, focus revolves around corporations which, as is well known, are built to make a profit. So, to what extent is a corporation expected to embrace and implement social responsibility? Better yet, is social responsibility binding or is it a pursuit out of which corporations can opt? These questions, and more underpin the discourse regarding social responsibility and corporations. They also form the basis of this paper, whose title poses a related question that it will attempt to answer regarding relevant texts and authorities touching on the subject matter.

Thesis Statement: In a repudiation of the perspectives fronted by Friedman and Mr. Galt, this paperbacks Glasbeek’s argument that corporations do have a responsibility beyond profits.

Friedman’s Ideas

Milton Friedman’s argument, in short, is that social responsibility is of no concern or value to corporations as it is incompatible with their primary objective: the generation and maximization of profit. It is easy, even convenient, to dismiss Friedman’s theory outright due to the outrage it inspires, but he offers a compelling defense of his stance. Friedman (2007) contended that shareholders’ returns should not be invested in any process or activity whose outcomes play no direct role in optimizing the wealth of those shareholders. It is worth noting that Friedman (2007) adopted the Kantian perspective in justifying this line of thought, arguing that corporate directors should strive to create the greatest happiness for their shareholders, which is the only way they would be advancing their interests. In this context, happiness equals profit optimization.

Corporate directors are, therefore, supposed to prioritize the wealth of shareholders; this is the only way they would be fulfilling their ethical obligations as they would be acting in a way that minimizes unpleasantness while maximizing satisfaction. On the other hand, charitable causes are unethical because they reduce shareholders’ happiness by taking their hard-earned funds and channeling them to activities with zero potential for profitability. As a philanthropic engagement, social responsibility does not enhance the lives of shareholders; in fact, it only eats into their wealth. As a result, it runs counter to corporate policy and must be avoided.

Friedman (2007) calls for a direct variant of capitalism and rejects any investments that disrupt or suppress economic privileges, led by social responsibility. According to Freidman, whenever a corporation pursues social responsibility it constrains the economic liberties of its shareholders because they (shareholders) are denied the opportunity to decide how their resources are utilized. Consequently, corporations should ignore social responsibility as it does not produce any revenue, at least not directly compared to financial investments whose profits are reflected in company books. Friedman (2007) adds that, in a free-enterprise country, corporate charity is a misguided expenditure of corporate monies.

Apart from the moral and economic freedom arguments, Friedman’s (2007) other logic involves the need for corporations to respect compliance policies and regulations. For example, he states that corporate executives are directly accountable for conducting business in line with the desires and wishes of shareholders by minting the highest possible profits while adhering to the fundamental protocols of society, which are legally and ethically grounded. It means that corporate directors cannot do anything to increase profits as they run the risk of violating established ethical and legal frameworks.

An upright corporation is not one that conducts activities for the sake of ethics; on the contrary, it is one that is inspired by economic feasibility. One of the strongest arguments for shunning social responsibility, as theorized by Friedman(2007), emanates from his four assessments of ethical investment. First, money spent wisely is that which an individual expends on themselves. Secondly, it is possible for an individual to spend money on others wisely, but this is challenging. Thirdly, if an individual spends other people’s money on themselves, they stunt their economic growth, and fourthly the task of investing people’s funds in other people should be left to governments and social welfare initiatives.

Using corporate monies to support social responsibility programs falls in the last bracket; in summary, it is an endeavor that is financially difficult to account for and involves taking funds that belong to shareholders in the form of dividends – and spending it on charity. A corporation, Friedman (2007) emphasizes, is morally impartial; however, it is legally required to optimize the wealth of shareholders, and this is its sole objective. This requirement applies to corporate executives and directors, who are ethically mandated to satisfy shareholders’ needs by leveraging their return on investment (ROI).

It is interesting to note that Friedman’s (2007) position resembles Darwinism as it employs the concept of survival of the fittest principle in the economy. For example, corporations whose shareholders enjoy the highest ROI, no matter the methods used to guarantee high returns, are the ones that will thrive; all others will collapse. His insistence illustrates Friedman’s (2007) commitment to this view that if a utility company disconnects a customer’s electricity for nonpayment and the customer perishes. As a result, the company is ethically justified because otherwise, consumers would not pay their utilities. If consumers do not pay then the corporation, whose shareholders and their dependents outnumber one customer, will crumble; utilitarianism demands that the interests of the majority are protected and promoted.

Mr. Galt

If there was a fictional character that perfectly embodied Friedman’s argument and position, then it is Garet’s (1923), Mr. Galt endorses Friedman’s ideas, including economic liberty, maximization of shareholders’ wealth and personal profit, and legal pursuit of corporate activities (Garet, 1923). Like Friedman, Mr. Galt is unapologetic for his style and aggression; he believes that so long as he is operating within the boundaries of the law, then he should, together with the shareholders of his companies, be free to increase and enjoy his profits as much as possible. Several incidents and situations in the book support this inference.

Mr. Galt was always interested in and passionate about the Great Midwestern Railroad as he understood its potential for profit and had invested his personal and family funds into it by buying its stock (Garet, 1923). However, his ambition was to take over the firm and boost its profitability to the level he thought it could achieve. Because his path was blocked by people he considered incompetent and weak compared to himself, such as Mr. Valentine, its President, he engineered a move that saw him realize that goal (Garet, 1923). The company had become bankrupt, and Mr. Galt was not about to see such a valuable investment go to waste.

Mr. Galt studied and understood the business and the industry, and then proposed a restructuring of the firm which allowed him to become one of the ten board members. From this point onwards his path was clear; he eased himself into the Chairman’s seat after capitalizing on the influence of men who were in his debt and then displaced Mr. Valentine to become the President of the company (Garet, 1923). All the while, Mr. Galt relied on his aggressively compassionless and fanatic drive to forge ahead with his plans (Garet, 1923). He summarily terminated workers he felt were holding the company back and recognized those who strengthened it.

After several years of considerable hard work, diligence, and strategic investments in the business, Mr. Galt not only rebuilt the firm but also used its profits to acquire other railroad companies (including the Orient and Pacific Railroad), thus becoming a monopoly (Garet, 1923).  He also acquired insurance firms such as Security Life Insurance Company (Garet, 1923). By this time he had amassed significant wealth for himself and his family. In the process, he also acquired enemies and became despised by the public and Wall Street.

Eventually, he was summoned before Congress to be grilled by a House Committee on his business style and operations (Garet, 1923). As part of his interrogation, Mr. Galt defends his business practices by stating that he is a farmer who uses the money to fertilize the country, sow, reap, improve the land, and buy machinery and buildings (Garet, 1923). He acquires money and reinvests the profits into the soil. He also admits that like all farmers he is a gambler. He adds that no railroad or business he has ever invested in has declined in value even though he buys them when they are bankrupt and valueless, and nobody wants them and makes them profitable.

Mr. Galt also stresses that he would suggest that the Security Life Insurance Company – of which he chairs the finance committee – buys Great Midwestern’s securities (Garet, 1923). When questioned concerning the unhappy minority stockholders of the Orient and Pacific (they were displeased by Great Midwestern’s use of its influence as a majority shareholder), Mr. Galt replied that he was ready to buy them out whenever possible. Lastly, he declares that he would invest an amount totaling half the national debt ($500,000,000) to upgrade Great Midwestern’s infrastructure (Garet, 1923). These behaviors and actions are a reflection of Friedman’s viewpoint.

Glasbeek’s Counterargument

Glasbeek (2007) completely disagrees with Friedman’s interpretation of economic freedom, social responsibility, and corporate ethics. In the same breath, he rationalizes the importance of social responsibility in the corporate world. First, Glasbeek (2007) opines that corporations behave contrarily to the claims of their supporters. Second, Glasbeek (2007) argues that allowing corporations more privileges diminishes the freedom of citizens. It does not expand personal liberties as Friedman explains because as corporations become increasingly monopolistic, they reduce competition, curtail own sovereignty, and limit democratic space and citizens’ ability to choose. Fourth, Glasbeek (2007) adds that since economic ideas such as self-interest, expansion, efficiency, and growth have evolved into political principles, stronger corporations weaken political resolve and capture the government, thus subverting popular will and the power of the electorate.

Fifth, corporate law is a myth which is rooted in the idea of a corporation as a legal individual; this must be modified to denote reality (Glasbeek, 2007). Six, the market model that is so passionately promoted by Friedman entrenches inequality and views democratic influence over economic development to be fallacious; as such, the market model hinders the intrinsic laws of the market and, therefore, encourages inefficiency. Finally, Glasbeek (2007) reckons that supporters of market theology as he refers to it do not acknowledge the fact that the market is neither a natural environment nor a neutral entity;  instead, it is a political institution and a product of purposeful legal and political processes.

According to Glasbeek (2007), corporations persistently propagate self-destructive behaviors because that is how they are designed; they are powerless to such actions. Corporations are the most significant legal catalysts of capitalism and are meant to achieve capitalism’s objectives. The goals of modern capitalism are encapsulated by the relentless ambition to amass communally generate wealth privately through competition and unequal wealth distribution. They rely on inequalities to gain competitive advantages and produce profitably through fear, greed, and luck(Glasbeek, 2007). Corporations are the spearheads of private wealth accumulation in mature capitalistic societies; they exploit legal lacunas to conceal the insensitivities and brutalities that enable their profitability. Next, they massage the public and governments ideologically and intellectually so that they can maintain or enhance their positions(Glasbeek, 2007). After this, they spread lies to cement their dominance, including by labeling themselves as liberal, democratic, and market institutions. All these are illusions that can be compensated for through social responsibility.

Why I agree with Glasbeek

According to Aguilera, Dorobantu, Luo, and Milliken (2018), the reality is that corporations cannot exist without the people who are not their shareholders, most of whom are their customers. The assumption that a corporation should only listen to its shareholders and become preoccupied with profitability is both absurd and impractical. For instance, a multinational company may have 10,000 shareholders and 50 million customers; based on logic, the customers far outnumber the shareholders. Friedman’s application of Kantian ethics becomes irrelevant at this point because the people that form the lifeblood of a corporation are its customers, who are also the majority and whose happiness should be augmented through social responsibility.  The shareholders are the minority and do not wield as much influence as Friedman assumes.

Also, shareholders do not obtain wealth from directors and executives; instead, they are entirely dependent on mass markets to continue enjoying dividends and profits (Alexandros &Paraskevi, 2019).Mass markets are mainly the bedrock of modern society, as consumption underlies socioeconomic development, among other vital indicators of holistic growth. As a result, it is safe to surmise that society sustains corporations and that businesses are indebted to society (Grayson & Hodges, 2017).Social responsibility is a way of repaying that debt and an obligation from which corporations must not run.

Finally, in his obsession with corporate profitability in which he dismisses social responsibility, Friedman ignores a critical attribute of social responsibility, which is that it also generates profits. Nowadays companies that practice CSR carry favor with the public, meaning they are admired to the degree that customers would want to associate with them by buying their goods and services (Grayson & Hodges, 2017). Social responsibility is, therefore, a source of competitive advantage that boosts profitability by increasing the number of customers.

Conclusion

In short, it is true that corporations are formed to generate profits. It is also true that corporations are not public entities; as a result, members of the public have no say regarding how they are run or what they should do with their money. The only people to whom a corporation is answerable are the shareholders, so its actions are always right provided they are meeting shareholders’ expectations. It could not be farther from the truth because corporations cannot survive without its customers, who form the society.

References

Aguilera, R.V., Dorobantu, S., Luo, J., & Milliken, F.J. (2018). Sustainability, stakeholder

governance, andcorporate social responsibility. New York, NY: Emerald Group Publishing.

Alexandros, A., & Paraskevi, D. (2019). Cases on corporate social responsibility and

contemporary issuesin organizations. New York, NY: IGI Global.

Friedman, M. (2007). The Social Responsibility of Business Is to Increase Its Profits. In:

Zimmerli W.C.,Holzinger M., Richter K. (Eds.), Corporate Ethics and Corporate

Governance (pp. 173-178). Berlin: Springer.

Garet, G. (1923). The Driver. Boston, MA: E.P. Dutton.

Glasbeek H. (2007). The corporation as a legally created site of irresponsibility. In: Pontell H.N.,

Geis G.(Eds.), International Handbook of White-Collar and Corporate Crime (pp. 248-278). Boston, MA: Springer.

Grayson, D., & Hodges, A. (2017). Corporate social opportunity!: Seven steps to make

corporate socialresponsibility work for your business. London: Taylor & Francis, 2017.

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