The Business of Business is to Make Profits
By William Shughart • Saturday September 4, 2010 6:14 AM PDT • 3 Comments
In the debate triggered by Aneel Karnani’s essay on corporate social responsibility published in the Wall Street Journal (Aug. 23)—see the letters to the editor published on Aug. 30—a critical point was overlooked.
If, as the late Milton Friedman taught, the sole objective of business is maximize profits, then the managers of those private enterprises would not be able to substitute their own preferences for those of their shareholders as to what charities and other social objectives to promote. Why should corporate CEOs be free to donate some of their owners’ profits to, say, the local symphony orchestra, rather than to more pressing social needs?
Confining the objective of business to profit-maximization affords shareholders the freedom to spend those profits as they see fit, be it on themselves or on their favorite cause. That is why no one should invest in a corporation that claims to be “socially responsible”.
I would be interested in hearing your thoughts on applying this argument to corporations making political donations. Should an investor consider such behaviour a pursuit of profit-maximization?
Dave Killion | Sep 4, 2010 | Reply
Why should corporate CEOs be free to donate some of their owner’s profits to, say, the local symphony orchestra, rather than to more pressing social needs?
Perhaps donating cash to the local symphony is a good investment in public relations and name recognition. It may also afford some measure of access to other CEO’s on a social networking level.
More pressing social needs won’t have thousands of programs printed up with the corporate logos of sponsors, or mention of corporate sponsorship on radio and TV spots advertising symphony concerts. Plus, hobnobbing with the upper crust is more likely to produce benefits than hanging out at the local soup kitchen.
All things being equal, throwing profits at charities is no less appealing to me than overpaid CEOs or corporations that “invest” heavily in politicians.
Considering P/E ratios being what they are and lack of growth when adjusted for inflation, why bother with stocks anyway?
I’m not so sure there is really such a thing as corporate social responsibility, anyway. There is only the effort to create a perception of such a thing. If such a responsibility actually existed, corporations would cease their rent-seeking behaviors.
Tom Blanton | Sep 4, 2010 | Reply
Mr. Killion,
Corporate political contributions by and large amount to “rent-seeking” rather than “profit-seeking”. Writing checks to political parties or to the campaigns of individual candidates are ways of buying influence over the enactment of laws and regulations that selectively benefit the contributor or to fend off the passage of initiatives that would harm them. In either case, because political contributions do not increase wealth, but merely help determine how existing wealth is distributed, monies donated for political purposes are socially wasteful.
William Shughart | Sep 8, 2010 | Reply