“The social responsibility of business,” Milton Friedman famously said, “is to increase its profits.”
Some extol this view. Others condemn it. But many simply do not recognize that Dr. Friedman’s 1970 aphorism has frequently been misunderstood or quoted out of context, often to serve anti-business ideologies or misguided legislative initiatives.
A more accurate interpretation reflects basic principles behind free enterprise, profits and healthy returns on investments. Any company that makes a profit does so because it provides goods, services and technologies that society needs and values – legally, ethically, and by offering superior quality, lower cost, greater reliability, outstanding customer care and other benefits, while protecting the environment. It thereby stays in business, earns profits, and rewards investors who made its innovations and products possible.
It is the most fundamental way a company is socially responsible – to employees, customers, families and communities that have been improved by the company’s actions. It also ensures that the company and its officers, shareholders and employees are financially able to engage in other activities that we recognize and applaud as “good deeds” on behalf of their communities. They can serve their communities in these additional ways only if the companies that employ them are doing well – and they are thus not in fear of losing their jobs and livelihoods.
Companies do not earn consistent profits or even a supposed “license to continue operating” by subscribing to fads, political schemes, or “corporate social responsibility” initiatives that reflect and promote the agendas of social or environmental activists. They are better advised to subscribe to core principles that have assured success since well before Adam Smith: identifying and serving societal needs for innovative, high quality products and services at reasonable prices.
Thousands of businesses do all this on a regular basis. Here are just a few examples.
BB&T Corporation of Winston-Salem, NC operates 1,500 branches, insurance agencies and financial services companies, with combined assets of over $125 billion. Its fundamental strategy, CEO John Allison told me, is to emphasize quality over price via personal relationships with clients, continual employee education, and organizing its banking operations as groups of community banks, to make them “more responsive, reliable and empathetic.”
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