Corporate Social Responsibility: A Fledgling Movement Faces a Crucial Test

In his best-selling book Capitalism and Freedom, first published in 1962, future Nobel Laureate and world-renowned economist Milton Friedman laid down this basic principle for corporate executives: their sole social responsibility is to maximize the income and wealth of stockholders. “Few trends,” he wrote, “could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine.”

Union leaders, student activists, environmentalists, and advocates of various other types have long accepted that subversive doctrine. Of late, more and more top corporate officials, despite their own large stock holdings, have also done so. Though a tiny minority, they are pioneers in venturing outside the business path dedicated solely to maximizing the financial well-being of shareholders. Even in the business world, “the movement for corporate social responsibility has won the battle of ideas,” according to the Economist, the English-language media’s foremost defender of capitalism.

In a January 22, 2005, editorial and eighteen-page article, both titled “The Good Company,” the Economist formally joined the battle on Friedman’s side (without invoking his name) and exhorted corporate leaders to reject the notion of corporate social responsibility (CSR). Quoting the idealized self-interest of Adam Smith’s butcher, brewer, and baker, the lengthy article dismissed CSR as “based on a faulty—and dangerously faulty—analysis of the capitalist system,” and hence a tool for wrongful interference in corporate decision making. The company that works within the law, and doesn’t cheat, “is doing good works” just by making a profit, the Economist insisted. A corporation can be a “good company” without the cosmetics of CSR.

Like any fledgling movement, CSR has many different manifestations. In one way or another, however, its common thread is the goal of integrating the public interest into the corporation’s mission. The Economist fired both barrels at this core idea. “There is much to be said for leaving social and economic policy to governments. They, at least, are accountable to voters,” it editorialized (ignoring the governments of China and Vietnam). And it wound up with this wisdom: “The proper guardians of the public interest are governments. . . .The proper business of business is business. No apology required.”

And yet the movement keeps moving, both inside and outside the business world. Most troubling of all, from the Friedman/Economist perspective, is how widely CSR has infiltrated the executive suite itself. For example, as the magazine pointed out, in their annual reports most large multinationals now justify their existence in terms of “service to the community,” rat...