This is the third of a six-blog series that simply and in plain language explains the dangerous fallacy of Milton Friedman’s “maximize profit” business ethic.
We’re obliged to take further issue with Friedman and his singular corporate ethic. Friedman contends that corporate executives are agents of the owners (shareholders) and are bound only to act according to the owners’ desires. He has no place for larger social considerations—yet he says even corporate executives are bound by laws and ethical customs. Friedman’s stance is muddied by this mixed message. Are executives bound only to the shareholders, or do they in fact have obligations to the larger society, which creates laws and ethical customs?
Friedman’s article (introduced in the first post of this series), goes on to argue that acting in the social interest is at odds with the owners’ interest. This view is narrow and short-sighted; are not shareholders part of society? Friedman makes the worthy point that actions of corporate social responsibility are often used to generate positive publicity for the purpose of offsetting the perceived negativity of profit-seeking. He is right that profit should not be criticized in and of itself and seen as competing with social action. He is wrong, though, in saying profit should be praised in and of itself and that it can be pursued apart from any social interest. Friedman himself (as noted in the first post of this series) provides the corporate social responsibility caveat that “laws and ethical customs” must be considered. It is unnecessary, unhelpful, and ultimately unrealistic to pit corporations and society against each other. Remember our observation of the relentless rules of economics: “we are they” and “we” gain when we all gain.
One aspect of Friedman’s argument deserves special attention even fifty-plus years on. He contends, “Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but ‘business’ as a whole cannot be said to have responsibilities, even in this vague sense.” Contrary to Friedman’s emphasis on the artificial nature of corporate “personhood,” recent legal interpretation has afforded corporate “persons” rights that are not at all artificial but very real, and expansive. And no one could seriously claim that corporations have only artificial impact. To grant corporations the rights of individuals and not-at-all-artificial powers, but relieve them of responsibilities is wholly inconsistent with the reality that rights and responsibilities are opposite sides of the same coin.
Friedman’s original message was provocative and has been widely influential, despite insightful critiques. But the American legal landscape and corporate world have since been completely reengineered. Because of the expansive power increasingly afforded to corporate “persons” and the way they wield that power through lobbying of lawmakers and mass messaging of society, we cannot honestly say that corporations operate within the legal and ethical context society establishes for them. The defense that a corporation is “playing by the rules,” such as paying little to no tax because tax law allows it, rings hollow when the corporation influenced the tax law. Making the rules isn’t the same as following them.
There is more to say, and more importantly more to do, on this issue. For now, suffice it to say that corporations are a valuable part of society, but they must partner as truly part of society rather than bend society to serve the corporations’ narrower interests. Corporations are created by society for the benefit of society, not the other way around. Ethically, this relationship has to be a partnership of mutuality or it becomes destructive.
Corporations that still follow the maximize profit ethic championed by Friedman suffer from three fatal consequences, damaging to both the corporations and broader society. We’ll discuss these three consequences in each of the following three blogs. Meanwhile, what ethic(s) do you or your organization hold dear that are damaging? None?! Think deeper.
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