It is possible to trace worries about the proper ways of conducting a business to the first origins of commerce. For example, Aristotle discusses the concept of pleonexia, which is the desire for taking more than ones share of the material goods, or what we could call profit maximization today. Aristotle saw pleonexia as potentially disruptive to the harmony of the city. With the advent of the first industrial revolution, Adam Smith was responsible for spreading the view that it is this self-interested action by economic players in a free market that creates well-being. Smith famously wrote, “I have never known much good done by those who affected to trade for the public good,” which might be read as a criticism of a corporate social responsibility before its time. However, in other parts of his writings, Smith was more open to cooperation, altruism and a compassion among economic agents. Probably the best known modern defender of the view that business should be left free to pursue profit, was Milton Friedman, the American economist who won the Nobel Prize for Economics in 1976. In 1970, Friedman published a very popular article titled “The Social Responsibility of Business is to Increase Its Profits.” In this article, Friedman wrote that 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. Why did Friedman oppose the concept that the companies have wider responsibilities? He advanced three main reasons. First, he thought that only human beings have moral responsibility for their actions. Corporations, Friedman believed, are only legal entities, so we must become responsibilities of the executives, not firms. Second, once we focus on executives, it is their responsibility to act solely in the interest of the shareholders. The reason Friedman wrote this is that an executive is an employee of the owners. His or her responsibility is to conduct the business in accordance with the desires of the shareholders, which generally will be to make as much money as possible. The day that executives pursue social responsibility, they spend the money of the company owners for general interest, which is that they impose taxes on the owners. Further, according to Friedman, social issues and problems are the province of the state rather than corporate managers. When managers pursue social responsibility, they act as civil servants, something that is inappropriate because managers are appointed by companies and not chosen by citizens in regular elections. So, to summarize, Friedman presented social responsibility as a misconceived attempt by managers to use the money of the firm for general interest, breaking their fiduciary duties to shareholders. However, Friedman noted that sometimes, the good intentions of managers were only a screen for self-interest in business objectives such as attracting talented employees, exploiting the tax deductibility of charitable contributions, or generating public goodwill. So, Friedman suggested that a room for social responsibility might exist after all, but only for those initiatives that were beneficial to business. And, in any case, Friedman believed it was better not to call them social responsibility to avoid any implication that the companies might have any duties beyond making profits. Friedman’s arguments are at the heart of this so-called shareholder value approach, which dominated the business in the 80s of the last century. This article is still influential today, and the idea that firms should only pursue profits and leave social and environmental issues to governments is still appealing to many. However, starting with the 90s, the idea that firms do have social responsibilities has spread. It has become clear that large firms and especially multinational companies have huge impacts that go well beyond the decision of the single executives. Moreover, companies can enter contracts with individuals, and in these contracts, they have the same rights and obligations as persons. Therefore, it is increasingly difficult to agree with Friedman that the companies have no responsibilities and the managers can ignore the problems of society. Also, in recent decades, governments have been retreating from charity, providing some public services such as transportation, water provision, or telecommunication. In many countries, governments are not able to address basic social needs. For example, building roads, infrastructure, schools, due to lack of resources or state failure. Certain problems, such as climate change, are intrinsically global in their nature, and so they are not within the reach of the single government. These are further factors that support the widespread request that firms accept responsibility for their impact on society.
