Friedman was an economist and the famous advocate of Iaissez-faire (translates as ‘let do/let go’) capitalism, the economic doctrine opposing governmental interference in organisations beyond a necessary minimum of regulating force and fraud among market participants.
Friedman's Argument
Friedman believed that “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits” (Friedman, 1970)
He famously argued that the ‘business of business is business’ (Davis 2005), reasoning that the sole responsibility of the organisation was its shareholders, providing profits for them. He acknowledged legal and ethical constraints on business activity, emphasising that the organisation should not harm society, but he denied that it should assume any wider social responsibility for its maintenance and improvement.
Criticism of Friedman
Friedman's critics have argued that his own reasoning is flawed. His assertions about the difference between actively seeking to do good (which he regards as being beyond the duty of business) and merely avoiding doing harm (which he advocates) are unclear, often illustrating instead that the choice is between doing good, or by default, doing evil (Somerville, 2006).
One of Friedman's principle arguments was against the idea that the good being done must be a non-profit exercise, not undertaken for self interest. If self-interest were the motivation, Friedman would not oppose it. (Somerville 2006).
This again suggests misunderstanding of the CSR concept, as self-interest is never necessarily excluded from these policies. CSR involves establishing all the responsibilities of the organisation to its associated communities and environment, and consideration of the impact being made by the organisation on society (Tench 2006).
This is not necessarily performed to the exclusion of the organisation’s needs; “Doing Well by Doing Good" is a frequently cited CSR slogan (CSR Europe, 2007), along with ‘Enlightened self-interest’ (Tench 2006). Both phrases suggest that organisations acting to further the interests of others (or the interests of the community(ies) which they are part of), ultimately do so for their own long term self-interest.
In fact, it may be harder to pinpoint policies that never consider self- interest on some level, although often in the long term. Companies may at times receive little recognition for their actions and could be seen to be acting altruistically, but the author argues that they would not deny their involvement should the media express an interest, and certainly most companies like to receive such coverage for any CSR policies they introduce. If achieved, this immediately serves to raise their profile, with associated benefits of a short-term nature.
The alternative to Friedman's approach is Stakeholder theory- much advocated by modern-day PR practitioners and theorists.
Stakeholder theory
A Stakeholder is any party with an interest or stake in the organisation. Organisations’ stakeholders may include employees, suppliers, customers, trade unions and the local community, among others. Any individual may be part of multiple stakeholder groups, e.g. an employee may also live in the local community and be a member of a trade union. All possible stakeholders, internal and external, are considered in the stakeholder approach (Tench 2006).
According to this model, shareholders, afforded sole importance by Friedman, are just one group of stakeholders whose interests the corporate manager must deal with (Somerville 2006). Increasing profits is just one of many different interests that must be considered. The interests and potential impact of shareholders on the future of the company may be very obvious, but the other groups can also have influence in different ways. An organisation that damages the local environment can in turn suffer from a lack of goodwill in the local community, and employee morale will also be damaged- each factor ultimately affecting the company.
CSR is a necessary element of this approach, an integral element of the organisations’ responsibilities, affording social duties and maximising profits equal importance.
Current theorists and organisations mainly reject Friedman’s views, and the stakeholder approach is most popular in the modern business world. CSR is an integral part of this approach, has proved a successful strategy for many companies and is here to stay.
References:
CSR Europe (2007) ‘Doing well by doing good’ accessed 07.01.2007
Davis, I (2005). ‘Business and Society; the biggest contract’ in ‘The Economist’ May 26th 2005, accessed 07.01.2007
Friedman, M. (1970, Sept. 13). A Friedman doctrine: The social responsibility of business is to increase its profits. New York Times Magazine.
Somerville, I (2006). ‘Business ethics, public relations and corporate social responsibility’ in ‘The Public Relations Handbook’. A. Theaker (Ed.). Oxon. Routledge
Tench, R (2006). ‘Community and society: corporate social responsibility (CSR)’ in ‘Exploring Public Relations’. R. Tench & L.Yeomans (Ed.). London. Pearson Education
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