The Crime of Corporate Social Responsibility
For release July 30 and thereafter (556 words)
by Dr. Philp R. P. Coelho (near left) and Dr. James E. McClure
Taking things without permission is theft; what is done with the proceeds matters not. Why, then, are corporate managers who give away a firms’ resources for “socially beneficial” causes not arrested?
Any discussion must begin with an understanding of these four points:
- Incorporations chartered by governments are legal figments that allow their owners to engage in enterprises as if the firms were people.
- Firms are extensions of people who pool resources to pursue economic opportunities and profits beyond the reach of an individual. The fiduciary duties of managers are to husband resources because they belong to the owners (stockholders).
- Firms were incorporated for the express pursuit of enhancing their owners’ economic well-being; it is incoherent to argue that corporations have social responsibilities beyond those specified in prospectuses and charters.
- Firms are figments; the people who invested their funds in firms did so under the expectation of financial rewards.
Returning to our question, the doctrine of corporate social responsibility fosters extra-legal expropriations of stockholders’ wealth; if stockholders wanted to simply give their money away, they would not have bought stock.
The only coherent view of corporate social responsibility is Milton Friedman’s: “There is one and only one social responsibility of business — to use its 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.”
Yet, a different view of corporate social responsibility predominates today. Activists argue that managers should weigh their fiduciary duties to owners against the “needs” of an amorphous and ill-defined gaggle of “stakeholders.” This nonsense is given an air of legitimacy by academics.
Stakeholder ethics and theory permeate and predominate in academe because academic rewards and success accrue to those who attract funds. So if one advocates corporate social responsibility, then asking corporations for resources to pursue educational or professional goals is an easy next step.
Academic approval covers the doctrine of corporate social responsibility. Successive generations of academics and managers collaborate in its maintenance because there is a reinforcing cycle of self-interest. Stakeholder theory facilitates the personal status and ambitions of management and the fundraising opportunities of the academicians. Academic approbation thereby allows managers to venture into areas far beyond their ken.
The best billiard players make their shots as if they were experts on geometry and physics, but no one expects them to be experts in these fields. Conversely, PhDs are not expected to be experts at billiards.
Albert Einstein wrote on the economic superiority of socialism over capitalism. History, however, has made this position comic. And like the billiard player, Bill Gates behaved at Microsoft as if he understood free-market economics. His recent “creative capitalism” speech, though, emphasized the broader “responsibilities” of business enterprises and displayed an ignorance that would misallocate and misappropriate resources.
No matter how honorable the intentions of Einstein or Gates, they fell to hubris in defining corporate social responsibility.
The authors, adjunct scholars of the Indiana Policy Review Foundation, hold doctorates in economics and teach at Ball State University.