FEBRUARY 2005

CSRs Grim Reaper

Daniel J. O'Connor

With a clear, shared understanding of how real value is, and ought to be, created in the market, we can resolve the old debate about corporate social responsibility.

CSRs Grim Reaper

Daniel J. O'Connor
Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine.1 With these words, Milton Friedman, future Nobel Laureate from the University of Chicago, garnered for himself the devotion of countless corporate libertarians around the world, most of whom are among the more than 100,000 MBAs graduating each year. And with these same words, Friedman, perhaps unwittingly, set himself up as an easy target for corporate egalitarians who have apparently tired of denouncing a simple metaphor once uttered by a Scottish philosopher over 200 years ago. For some odd reason, many highly vocal critics of libertarian economics and all things negative that it has allegedly wrought in our world require a villain to help make their case for CSRa personification, perhaps, of the ideological threat they feel descending upon them from the libertarian orthodoxy. Enter Milton Friedman, the Grim Reaper of the CSR Movement. There is hardly a debate on corporate social responsibility that does not at some point in the process work its way around to Friedmans notorious position on the subject. The fascinating thing is that each side in the debate will attempt to use Friedmans position to bolster their own argument against the other side. While the corporate libertarians use it as a fallacious appeal to authority, the corporate egalitarians use it as an equally fallacious appeal to popularity. A reasonable person might want to investigate what Friedman actually said and then come to his or her own conclusions. Toward that, I would highly recommend that people with an interest in these issues read Capitalism and Freedom. Until then, or in lieu of that as the case may be, I would like to point out that Friedman, without necessarily realizing it, does place some critically important conditions on what some regard as his narrow view of corporate social responsibility. For example, in the paragraph just prior to the above quote, Friedman says: In [a free economy], there is one and only one social responsibility of businessto use its resources and engage in activities
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designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.2 I suspect that if we could, with the sweep of a hand, eliminate every sort of business practice that is not consistent with open, voluntary market exchange free of any deception or fraud, then we would go a long way toward satisfying the millions of CSR advocates around the world.

I suspect that if we could, with the sweep of a hand, eliminate every sort of business practice that is not consistent with open, voluntary market exchange free of any deception or fraud, then we would go a long way toward satisfying the millions of CSR advocates around the world.
In the first chapter of Capitalism and Freedom, Friedman presents the essence of his libertarian economic philosophy as follows: Fundamentally, there are only two ways of coordinating the economic activities of millions. One is central direction involving coercionthe technique of the army and the modern totalitarian state. The other is voluntary co-operation of individualsthe technique of the market place. The possibility of co-ordination through voluntary cooperation rests on the elementaryyet frequently deniedproposition that both parties to an economic transaction benefit from it, provided the transaction is bilaterally voluntary and informed.3 In the next chapter, he further clarifies that such bilaterally voluntary and informed exchange: presumes that we have provided, through government, for the maintenance of law and order to prevent coercion of one individual by another, the enforcement of contracts voluntarily entered into, the definition of the meaning of property rights, the interpretation and enforcement of such rights, and the provision of a monetary framework.4 By integrating these facets of Friedman's perspective, we begin to see at least an outline of my

Integral Value Proposition, which I typically summarize as the mutual pursuit of transparency, choice, and accountability. Granted, Friedman does not claim to be advocating for some sort of marketbased, socially-conscious method of integral business development. If given the opportunity to do so, I suspect he would consider the whole intellectual enterprise a bit... subversive. Moreover, he certainly does not share my multi-dimensional, developmental perspective on the nature of transparency, choice, and accountability. Nevertheless, there can be little doubt about the deeper implications of this libertarian economic philosophy when reconstructed within the Integral Value Proposition.5 Furthermore, Friedman is not only describing how the market does work, in his role as a leading proponent of positive economics. He is also prescribing how the market ought to work, in what must be acknowledged as his other role as a leading normative economist. Therefore, although it was certainly not his intention to do so, Friedman seems to be offering us a libertarian perspective on how real value is, and ought to be, created in the market. So, what are the implications of this for the debate over CSR? Profound, it seems to me. By reconstructing Friedman's libertarian perspective on CSR, we might proclaim that: The only social responsibility of the corporation is to maximize profits, provided that it is engaged in the mutual pursuit of transparency, choice, and accountability with all its stakeholdersmeaning customers, employees, suppliers, investors, and anyone else taking up the other side of a direct market relationship with the corporation. Granted, but what about the egalitarian perspective of many CSR advocates? Well, not to imply that they are entirely egalitarian in their economics, but a quick review of the Business for Social Responsibility mission statement yields this nugget:6 "Today's business landscape requires that companies navigate a complex and
Daniel O'Connor, MBA, MA, CFA, is a management consultant who helps entrepreneurs and executives envision alternative futures, articulate clear strategy, and measure strategic performance. email: daniel@integralventures.com website: www.integralventures.com

evolving set of economic, environmental and social challenges and address stakeholder demands for greater transparency, accountability and responsibility. These factors affect all aspects of business operations - from supply chain to marketplace and from employee productivity to investor return. To compete successfully, a company needs to develop responsible business policies and practices and make them an integral part of its mission, values, strategy and operations." Hence, for a complementary, reconstructed egalitarian perspective, we might proclaim that: If the corporation engages in the mutual pursuit of transparency, choice, and accountability with all its stakeholders, then it deserves whatever profits it can generate for the one stakeholder known as the investor. Therefore, regardless of whether we begin with a desire to protect stakeholders from rapacious corporations or a desire to protect corporations from rapacious stakeholders, as long as we have a clear, shared understanding of how real value is, and ought to be, created in the market, we emerge with an integral resolution that invites both sides of the debate to move into a transformative dialogue about precisely how we should engage this Integral Value Proposition: the mutual pursuit of transparency, choice, and accountability.

This February 2005 work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.

Milton Friedman. (1982). Capitalism and Freedom. Chicago: University of Chicago Press, 133. 2 Friedman, 133. 3 Friedman, 13, emphasis in original. 4 Friedman, 27. 5 Daniel OConnor. (2003). A Crisis of Vision: Toward a More Integral Economics. Catallaxis. http://www.catallaxis.com/ 2005/02/a_crisis_of_vis_1.html. Retrieved February 24, 2005. 6 Business for Social Responsibility. Mission Statement. http://www.bsr.org/Meta/About/index.cfm. Retrieved February 24, 2005.

Catallaxis explores the potential for a more integral approach to the business and economic challenges of our time. It features original articles and essays, thoughtful reviews and commentary, and referrals to other work in the field. website: www.catallaxis.com

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