27 September 2010

Friedman - yes, he was right

Milton Friedman said it best, and is often quoted - "The business of business is business". He also said "there is one and only one social responsibility of business–to use it resources and engage in activities 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".

It is these quotes and others from Friedman, that are frequently used to justify a position that CSR and Sustainability are not the responsibility of business, and that business has no role to play in the sustainability argument. A derivative is that the only issue of sustainability that should be of interest to a company is the sustainability of the company.

In a way both of these positions are accurate, and both arguments support the active engagement of business in CSR and Sustainability as more widely defined.

Certainly business can and should look to government for regulation, and should seek to influence government to avoid the introduction or support the repeal of harmful regulation.

Likewise businesses should recognize and accept the prerogative of governments, as representatives of the people, to develop regulation. In carrying out this role, government is simply fulfilling its responsibility, and business then as the obligation to implementation and comply with such regulation. In one very real example - Climate Change is real. the arguments are done. Now governments are setting objectives and agendas. It is time for business to stop pretending and get on with preparing, and indeed leading to achieve the changes that will be required.

At the same time there is no reason that a business should not, in the interests of fulfilling the spirit of Milton Friedman's quote, implement CSR and Sustainability programs, especially where such programs will enable the accomplishment of the business plan and objectives. For example, very specifically "social programs" such as assisting local communities with the establishment of basic education or clean water resources can be a manifestation of a company's desire to keep a local workforce supportive of the company, and in so doing ensure a long term source of appropriate labor, and reduction in the risk of local of national government intervention in company activities. In such a way a "social program" can serve as a cost effective method of supporting the core business of the company.

Taking the same example a step further, it is probably significantly harder to suggest that programs in areas either not serviced by the company, or outside the company's labor or raw material catchments, are justifiable as anything other than public relations exercises (which, it should be noted, are equally valid and appropriate business activities).

Another legitimate reason to implement a CSR program might be to thwart a government's desire to create a specific law. If there is the danger of the introduction of a law that the company (or industry group) perceives as being too restrictive, and the company believes that their actions could forestall the introduction of that law, a company may decide to introduce its own very visible program, therefore undercutting the 'need' for the law. This in no small part explains the tobacco industry’s involvement with the corporate responsibility movements, and it’s participation in CSR events (although sometimes in a side room).

For all that has been said in support of CSR and Sustainability activities above, no business should be initiating such activities, projects or reporting simply to create a "warm and fuzzy" feeling. That is not good business, and does not represent the interests of shareholders, and is a failure of management to uphold their fiduciary responsibility.

So in a funny way, Milton Frieidman was right - AND Corporate Social Responsibility and Sustainability ARE issues for business. The business that ignores CSR and Sustainability risks endangering its license to operate, risks increased costs, risks customer defection, and faces a grim future of watching its competition move steadily forward while it whithers away while proudly upholds a principle ("the business of business is business").

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