Friday, November 24, 2006

More on Corporate Social Responsibility

From today's WSJ, an article by Henry Manne, Dean Emeritus of George Mason University Law School, titled "Friedman Was Right," about CSR (corporate social responsibility):

Milton Friedman famously declared that the sole business of the managers of a publicly held corporation was to maximize the value of its outstanding shares. Any effort to use corporate resources for purely altruistic purposes he equated to socialism. He proposed that corporation law should prevent managers from straying off the reservation to join the altruists, a power now almost universally granted them by state legislation.

Now I realize Friemdan was absolutely correct about the significance of proposals for socially responsible corporate behavior, whether they emanated from within or outside the corporation. These proposals reflect, as well as anything else happening today, the inability of many commentators to distinguish between private and public property -- in other words, between a free enterprise system and socialism. Somehow large-scale business success, usually resulting in a publicly held company, seems mysteriously to transform the nature of numerous individuals' private investments into assets affected with a public interest. And once these corporate behemoths are "affected with a public interest," they must either be regulated by the state or they must act as though they are owned by the public, and are therefore inferentially a part of the state. This attitude is reflected not merely by corporate activists, but by many "modern" corporate managers.

Like the citizens who were afraid to tell the emperor that he was naked, no responsible business official would dare contradict the notion of CSR publicly for fear of financial ruin, even though the practice continues to cost shareholders and society enormous amounts. This is especially so in large-scale retail businesses like Wal-Mart or Coca-Cola or BP that are highly vulnerable to organized public criticism. Our laws against extortion do not function effectively when it comes to corporations. And so to some extent these private entities have indeed, via the social responsibility notion, been converted into crypto-public enterprises that are the essence of socialism. Milton Friedman was right again.


At 12/04/2006 6:46 PM, Blogger the ecopreneur said...

First, good blog! I enjoy your postst.

But Dean Manne's distinction between private and public property is not convincing. There is reason to believe that at a certain scale, corporations do in fact transform from a nexus of private contracts to that which affects the public interest.

He also fails to consider externalities which are not taken into account because of market and legal failures.

Finally, he does not consider the existence of a company's reputational market, in addition to the its market for its products and/or services.

I explain all the above points in my blog posting here.

Would love to hear your (or anyone's!) comments!


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