Daniel O'Connor | Integral Ventures, LLC
For nearly 40 years, economists have debated the question of whether or not corporations have any social responsibility beyond the delivery of profits to their stockholders. During that same time frame, corporate social responsibility has evolved from a counter-cultural idea into a mainstream movement with voluntary participation by countless corporations from all industries. Despite its popularity, or perhaps because of it, CSR remains as controversial as ever, with critics and advocates alike repeating the same arguments over and over again, without resolution.
In a recent essay, Gary Becker of the University of Chicago addressed the perennial question: Do Corporations Have a Social Responsibility Beyond Stockholder Value?
Do corporations have any responsibilities beyond trying to maximize stockholder value, adhering to contracts, implicit as well as explicit, and obeying the laws of the different countries where they operate? My answer is "no", although maximizing value, meeting contracts, and obeying laws help achieve many of the goals by those claiming corporations should be "socially responsible" by taking care of the environment, considering the effects of their behavior on other stakeholders, and contributing to good causes. Still, laws and contracts, and individual use of their own resources, rather than corporate behavior, should be the way to implement various social goals.
In many respects, his answer to the question is aligned with Milton Friedman's well-known views on CSR, which are grounded in a positive neo-classical market theory together with a normative preference for individual economic freedom. As far back as 1962, in Capitalism and Freedom, Friedman proclaimed that:
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.
In CSR's Grim Reaper, I presented an overview of my integral reconstruction of Milton Friedman's perspective on CSR, highlighting the previously unexamined parallels between his view of how markets should and do work and the CSR advocates' view of how socially responsible corporations should and do work with their customers, employees, investors, and other stakeholders. I believe it applies equally well to Gary Becker's perspective.
Without repeating this reconstruction, I will simply state one of my conclusions: If market participants conducted themselves as Becker and Friedman apparently believe they really should (normative theory) and already do (positive theory)--that is, in a manner consistent with the mutual pursuit of transparency, choice, and accountability in every market exchange--then it would not be unreasonable to claim that the only social responsibility of the corporation is to maximize its value to stockholders. Such a claim would be justifiable because it is premised on a pre-established standard of conduct between the corporation and all its stakeholders--a standard that, not insignificantly, would please all but the most radical of CSR advocates.
However, the burden of proof that corporate executives and other market participants actually do conduct themselves up to this standard would fall to Friedman, Becker, and all those who claim that stockholder value is an adequate measure of corporate social responsibility. They would have to demonstrate that the CSR agenda is not wrong, but moot, simply because corporations and their stakeholders are already engaged in the mutual pursuit of transparency, choice, and accountability in every market exchange. Absent such a demonstration, I have to conclude that the CSR agenda is neither wrong nor moot, but rather understandable as a response to the shortcomings in corporate conduct.
Furthermore, if a corporation is voluntarily engaging in practices that its management or other interested observers label CSR, isn't it properly a matter for that corporation's own stakeholders--including its current and prospective stockholders--to evaluate this conduct according to their own individual value functions? In fact, isn't that what they already do, with or without the blessings of economists? It seems entirely inconsistent with both the positive and the normative market theories of Becker, Friedman, and the like to argue that, when it comes to one particular set of business issues that fall under the banner of CSR, we otherwise rational, self-interested, self-organizing market participants have mysteriously lost our way amidst the confusing and enticing rhetoric of social responsibility.
If markets are as efficient as Becker and Friedman have long claimed and if markets ought to be as free and open as they have long argued, then shouldn't we allow market participants, rather than market observers, to determine precisely where to set the evolving standards of corporate social responsibility? Even if markets are not as efficient or as free as Becker and Friedman might like to believe, what market-based justification is there to denounce the entrepreneurial efforts of those market participants whose exchanges have self-organized into the CSR movement? Critics of corporate social responsibility often contradict themselves when they attempt to use market theory to argue against the natural emergence of CSR within a market economy.
I would like to believe that this perspective could transform the decades-old pro-market/anti-market debate over CSR into a more constructive dialogue about how we can foster the higher standard of market participation in which all of us, in our various roles as customers, investors, employees, managers, and directors, pursue mutually-agreed-upon and ever-evolving levels of transparency, choice, and accountability in all our market exchanges. This is the Integral Value Proposition--a market-based, socially-conscious method of creating real value for everyone in and around the corporation. It is not only the way markets are supposed to work, but the way they really do work when they are at their value-creating best.
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