Opinion | Profits and Social Responsibility: Revisiting Milton Friedman

To the Editor:

Re “Greed Is Good. Except When It’s Bad” (special section, Sept. 13):

The responses in this section to Milton Friedman’s famous 1970 essay on profit maximization indicate how much capitalist leaders have evolved in their thinking from Mr. Friedman’s shareholder primacy philosophy to the emerging stakeholder value model.

However, the notion that these two models are opposed is fundamentally flawed. There is no basic conflict between serving your stakeholders and serving your shareholders, who are of course one of your stakeholders.

What is missing, and widely misunderstood, is how sustainable shareholder value is created. Companies that treat their employees well create a culture dedicated to creating value for their customers. That customer value translates directly into increased revenues and profits, which in turn create greater shareholder value. Balancing their interests naturally requires trade-offs based on thoughtful analysis, which is the role of corporate managers.

By continuing to invest in employees and customers in good economic times and bad, companies are able to increase their shareholder value for the long term. That’s why companies like Johnson & Johnson, Walmart, Procter & Gamble and my former company, Medtronic, have performed so well in the 50 years since Mr. Friedman’s essay was published, whereas those that focused on maximizing short-term shareholder value like Sears and Kodak have withered and are near death.

Bill George
The writer is a senior fellow at Harvard Business School and former chief executive of Medtronic.

To the Editor:

Reading the article on Milton Friedman’s seminal essay published 50 years ago, I need only look out the window to see the results of his libertarian economic ideology. A pall of grayish-orange smoke lies over my neighborhood near Seattle, as it does along the entire West Coast. Fed by the hot, dry air of climate change, unprecedented wildfires rage across our landscape.

To maximize profits, the fossil-fuel industry fully embraced Mr. Friedman’s ideas and has spewed misinformation and propaganda for decades to thwart any attempt to reduce greenhouse gases. And now here we sit, enveloped in smoke, the window of opportunity to effectively reduce carbon dioxide emissions rapidly closing.

As I read that some C.E.O.s still celebrate his ideas, it occurs to me that greed, Mr. Friedman’s driver of free-market capitalism, may well be the human design flaw that leads us, like proverbial lemmings, over the cliff.

David M. Chapin
Redmond, Wash.

To the Editor:

I’m pleased to see the renewed interest in the ideas of Milton Friedman. In 2003 I introduced Mr. Friedman to the Whole Foods entrepreneur John Mackey. Mr. Mackey was keen to debate Mr. Friedman on the question of “corporate responsibility” and to introduce what Mr. Mackey came to call “conscious capitalism,” with its focus on all the stakeholders in a business venture.

What came out of that meeting was Mr. Friedman’s conclusion that all stakeholders, not just the shareholders, have an interest in seeing businesses maximize their profits, which is consistent with the so-called Friedman doctrine — “The Social Responsibility of Business Is to Increase Its Profits.” Mr. Mackey’s concept was that profits are necessary for survival of a business, but they are not the goal, not the purpose of the business.

Mr. Mackey founded Whole Foods Market because he thought the natural foods lifestyle led to better quality of life. He obviously was on to something. Whole Foods was sold for nearly $14 billion to Amazon.

Another way to think of this: All the stakeholders benefit by agreeing that maximizing profit is a valid measure of success. It’s really a question of allocation of the business revenues. What is the distribution of revenue between stakeholders that generates sufficient profit for the business to survive?

In our “Free to Choose” series on PBS, Mr. Friedman says, “The true test of any scholar’s work is not what his contemporaries say, but what happens to his work in the next 25 or 50 years.” He would be pleased with this continuing debate.

Bob Chitester
Erie, Pa.
The writer is executive chairman of the Free to Choose Network.

To the Editor:

The Friedman “greed is good” doctrine professes that corporate greed is good as long as it conforms “to the basic rules of society, both those embodied in law and those embodied in ethical custom.”

What are those laws? And where are those ethics? What hope do we have when our lawmakers respond primarily to corporate donors and lobbyists and ignore individuals? Or more important, they ignore science and basic environmental ethics — especially when policies conflict with corporate financial objectives.

Now 50 years later, the result of this doctrine is that the wealthiest 1 percent of people in this country have 40 percent of the wealth. And the number of people finding themselves food and housing insecure is out of control. Our national debt is now more than 60 times higher than it was 50 years ago. We have the most advanced medical care in the world, yet it is inaccessible to many.

When the next generations look back on us I fear that we will be remembered as the generation of greed. As a society, we found it intoxicating to consume in excess. We borrowed against the future without regard to the consequences. And it was just too costly and disruptive to corporate interests to protect our environment and atmosphere. We will have left the next generations with unbearable burdens all because of our greed.

No, greed is not good.

Ken Hughes
Lafayette, Calif.

To the Editor:

Even in 1970, when Milton Friedman published his piece on corporations and profits, consumers were realizing that price shouldn’t be the only factor when purchasing, and that corporations had a bigger responsibility than returning profits to shareholders. This trend has only grown: On the day The Times revisited Mr. Friedman’s piece, it also ran an ad on the back of the magazine about Dave’s Killer Bread and its commitment to employing those who deserve a second chance. On that corporation’s website, it’s clear that the company is trying hard to replicate this model nationwide, and it is already succeeding.

I’ve never tried this brand, and I have no affiliation with the company, but would I pay extra to reward its social conscience? Absolutely, and since it is sold in my neighborhood, that will happen soon. I certainly hope Milton Friedman’s followers will rethink corporate economics. After all, money isn’t everything. Man (and woman) does not live by bread alone.

Bill Dingfelder

To the Editor:

Re “Blaming Milton Friedman” (Opinion, Sept. 19):

Binyamin Appelbaum highlights the role of government as a response to Milton Friedman’s 50-year-old essay opposing corporate social responsibility. In the longer view, though, the very concept of what a corporation is has changed, and perhaps needs to change again.

Corporate charters used to include an explicit focus on a company’s larger responsibility to society. In time, though, such obligations fell to the wayside, and corporate charters became simple boilerplate approvals.

The notion of linking corporations to explicit social goods is resurfacing. Nine countries now require greater gender equity on corporate boards. About 50 countries require some sort of environmental and social sustainability reporting. International anti-money-laundering rules have grown far more stringent. Numerous countries, the United States among them, restrict corporate use of conflict minerals.

Corporations are an artificial construct meant to benefit society. The way those benefits are articulated has changed over history and can certainly change again if we collectively decide to do so.

David Sarokin
The writer is author of “The Corporation: Its History and Future.”

Source: Read Full Article