The Social Responsibility of Profits

Posted: Aug 09, 2007 1:21 PM
The Social Responsibility of Profits

“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.”

The company’s goal is to “help clients make sound business, banking and investment decisions, improve their lives and gain financial security,” Allison said. If the community doesn’t do well, neither does the company. That’s the best reason he knows for supporting civic projects in communities – such as BB&T’s reduced-rate loans and other support to low and moderate income housing projects, small businesses and small farms in areas it serves.

A basic BB&T ethical principle is standing up for free enterprise and property rights. In the wake of Kelo v. New London, it gained news coverage, respect and probably new customers by refusing to lend to projects that use government eminent domain powers to acquire private property, by redefining “public purpose” to include private enterprises that might increase tax revenues. “We just don’t do it,” Allison said flatly.

Skier’s Choice of Maryville, TN employs 400 people, manufacturing Moomba and Supra inboard ski boats that make the joy of getting out on the water affordable to more families in the US and beyond. Its focus on innovation, quality and dependability have made this privately held company an industry leader that strives for steady improvements in performance, fuel efficiency and emissions in its boats, and reduced energy use and waste streams in its production processes. The 2007 boats’ Indmar ETX/CAT-equipped Assault 340 engines boast the best emissions rating ever in a marine engine.

The company doesn’t boast or post its civic programs, but they include support for therapeutic horse riding for handicapped children and adults, Boy Scout boating and boat safety programs, preservation of Appalachian arts and crafts, and a number of local sports teams. It also offers free boating safety classes through the Coast Guard Auxiliary.

I’ve always been more at home in a canoe or kayak, but my son wanted something better suited to his version of fun with college friends. A used Moomba met his needs. When we encountered serious problems with an engine that was well past its warranty, Skier’s Choice customer service director Rob Loucks made sure they were fixed. “We just want to keep our customers happy, and get them back in the water,” he said – echoing the principle that profits and CSR begin with quality products and service.

CVS Caremark has employed a strategy of expansion, merger, acquisition and service to become the nation’s largest retail pharmacy chain, with over 6,000 stores in 38 states. CVS now fills more than one of every seven prescriptions in the United States. Its customers include individuals, corporations, unions, government employee groups, insurance companies and managed care organizations. Its goal: make quality healthcare affordable and worry-free.

The company’s community involvement programs include helping pediatricians and families improve access to healthcare for lower income children and people with Down syndrome, improving early literacy skills among homeless children, and providing nutritional and fitness education to reduce obesity. A few months ago, my daughter and I sought help for a school project: getting toiletries and other personal items to wounded warriors in the Walter Reed Army Medical Center. The response of our local CVS store was instantaneous and far beyond our expectations.

We had barely outlined the project when the manager began filling a shopping cart with several hundred travel-sized containers of shampoo, toothpaste, mouthwash, shaving cream, skin lotion and other items – to augment the $200 worth of watches, hair brushes, deodorants and other products we were purchasing. He then gave us a substantial discount on our items, saying simply that “helping our wounded service men and women is one of the most important things we can do. They have given us so much. We need to give a little something back.”

All these actions and heartfelt sentiments speak more loudly than the philosophies behind them. They represent the best that free enterprise and corporate America have to offer, in pursuit of profits and a commitment to improving lives through products, services and community involvement.

It is therefore ironic that highly regulated for-profit corporations are so frequently subjected to intense criticism for real, perceived and even invented transgressions. More ironic is the fact that the criticism often comes from nonprofit corporations that enjoy tax-exempt status but are often guilty of dishonesty, “greenmail” campaigns, and a troubling lack of transparency and accountability that harm poor families and call into question whether their own “license to continue operating” should be renewed.