Now that we have brushed off the outlandish first paragraph of Professor Friedman’s classic essay on business ethics (see our previous post), let’s turn to the second paragraph. Unlike the ad hominem nature of the first paragraph, this second paragraph does contain some strong opening salvos against corporate social responsibility or CSR. 

The first of Prof Friedman’s criticisms is that CSR is just cheap talk or window dressing, or in the eloquent words of Friedman himself, “The discussions of the ‘social responsibilities of business’ are notable for their analytical looseness and lack of rigor.” It turns out that this “cheap talk” critique of CSR will not only be much harder to brush off; this critique still bedevils the CSR approach to this day. In brief, although business ethicists have tried to operationalize CSR by identifying those discrete “stakeholders” who are affected by the decisions of business firms and by imploring firms to take the interests of such stakeholders into account, the problem with stakeholder theory is that the interests of such stakeholders are often diffuse and conflicting, and no version of CSR or stakeholder theory that we know of actually attempts to assign any specific or concrete weights to these stakeholders. And forgive us for sounding so cynical, but in practice, few if any stakeholders, aside from management, have ever been appointed to a single seat on a single board of directors of any major U.S. corporation.

We now turn to Prof Friedman’s other major criticism of CSR, which appears in the form of the following rhetorical question:

What does it mean to say that ‘business’ has responsibilities? Only people have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but ‘business’ as a whole cannot be said to have responsibilities, even in this vague sense. The first step toward clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom.

In other words, CSR is an incoherent concept, for it is one thing to treat a natural person as a moral agent, but it makes little logical sense to treat a collective entity like a corporation as a separate or discrete moral agent. After all, an artificial legal entity cannot engage in moral reasoning. Had Friedman stopped here (immediately after the full second paragraph of his essay!), his strong opening salvos would have soundly defeated the CSR view of business ethics via a technical knockout, for CSR is logically incoherent (since firms are collective entities) and lacks analytical rigor (since the interests of stakeholders are diffuse and unweighted). But he does not stop here. Instead, he will devote the remainder of his essay to defending his hardcore “profit maximization” view of business ethics. We shall thus proceed with our review of Friedman in our next post …

Source: Punch (24 June 1914), p. 496.