A decade ago, the consultants at McKinsey examined the trend of solving social problems through business strategies and asked where the public would come out on corporate social responsibility. Would it be perceived as corporate greed just dressed up to look like something else? Now McKinsey itself is being questioned for its own practices, most recently for assisting Purdue Pharma to “turbocharge” the marketing of OxyContin when opioid abuse had already killed hundreds of thousands of Americans.
What is the purpose of a corporation and what responsibilities does it have? Five years ago, Volkswagen’s emissions cheating scandal contributed to a steep downturn in public trust of companies. Today, the giant tech companies are under a spotlight for monopolistic and other practices, further eroding the public’s trust in the private sector.
Was Milton Friedman right?
Just over 50 years ago, the Nobel-prize winning economist Milton Friedman locked in the notion that the only legal responsibility of a corporation is to create profit. That idea persisted for decades and influenced managers to relentlessly pursue earnings per share, trim employee benefits, award high CEO payouts, and chase profits above all. But there actually has never been a US law requiring managers to maximize profits, except when a company is up for sale. And no law mandates that shareholder interests supersede the long-term health of a corporation. What is required is that manages use corporate assets in the firm’s best interest.
In 2019, the Business Roundtable—made up of the CEOs of America’s largest companies—redefined its statement on the purpose of a corporation to “promote an economy that serves all stakeholders: customers, employees, suppliers, communities and shareholders.” Where the Friedman dictum is referred to as “stockholder capitalism,” the BRT approach is often called “stakeholder capitalism,” or what we might think of as enlightened self- interest. Indeed, by strategically creating social value, companies can gain a competitive advantage, recruit and retain talent, and increase savings and profits. It can be a pathway to success. For example, CVS Caremark remade itself into CVS Health, first by ending tobacco sales in its stores and then transforming its product line to focus on health and wellness products. The company found its sweet spot in doing well by doing good.
Are companies amoral?
But in the ageless quest for wealth, should we worry that ethical behavior will always, eventually, take a backseat to profits? Put another way: Are companies ultimately amoral, if not immoral?
The motto of Francesco Datini, the 14th-century Merchant of Prato, was supposedly, “In the name of God and profit.” Pollution, industrial accidents, obesity, low wages, addiction, global warming, and other misfortunes might be said to be just so much collateral damage. Rachel Maddow, in her book Blowout, calls the oil and gas industry amoral. When a lion kills a gazelle, says Maddow, “you can’t really blame the lion. It’s who she is; it’s in her nature.”
While there are certainly examples of indefensible corporate behavior, there also are many checks and balances in place. Whistleblowers can email their complaints and get results , The Wells Fargo fake-accounts scandal was brought to light by a Los Angeles Times expose that prompted a regulatory investigation. The Volkswagen fiasco came to light through independent product testing. Purdue Pharma eventually filed for bankruptcy, agreed to plead guilty to three counts of criminal wrongdoing, and reached an $8.3 billion settlement with the US Justice Department. Unfortunately, the sanctions usually kick in after much of the damage is done.
Do companies have the expertise to do good?
It used to be said that corporations aren’t equipped to deal with social responsibility issues—better…