When should businesses get involved in politics, or other social matters? Case in point: what do you think of this?
Business Coalitions to Speak Out Against Voting Restrictions in Texas
Two broad coalitions of companies and executives plan to release letters on Tuesday calling for expanded voting access in Texas, wading into the contentious debate over Republican legislators’ proposed new restrictions on balloting after weeks of relative silence from the business community in the state.
One letter comes from a group of large corporations, including Hewlett-Packard, Microsoft, Unilever, Salesforce, Patagonia and Sodexo, as well as local companies and chambers of commerce, and represents the first major coordinated effort among businesses in Texas to take action against the voting proposals.
The letter, under the banner of a new group called Fair Elections Texas, stops short of criticizing the two voting bills that are now advancing through the state’s Republican-controlled Legislature, but opposes “any changes that would restrict eligible voters’ access to the ballot.”
A separate letter, also expected to be released on Tuesday and signed by more than 100 Houston executives, goes further. It directly criticizes the proposed legislation and equates the efforts with “voter suppression.”
We stand at roughly the 50th anniversary of the Friedman Doctrine. In 1970, Nobel-winning economist Milton Friedman published A Friedman Doctrine–The Social Responsibility of Business Is to Increase its Profits. The most famous quotation in Friedman’s article is this:
“there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits…”
This line, and the title of Friedman’s piece, suggest that the Friedman Doctrine is pure selfishness, putting profit over all. But Friedman continues on with an important limitation:
“…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.”
So the Friedman Doctrine does recognize that owners have an important obligation–to stay within the rules of the game. But selective quotation has led many to advocate untrammeled free enterprise in much the way selective quotation of Brandeis (“the remedy for bad speech is more speech, not enforced silence”) to advocate untrammeled free speech: in both cases, advocates are going well beyond the original author. Friedman even recognizes restrictions on business that go beyond the law, because “profit” in the quotation above is just shorthand for “what owners want”…and that may not be profit:
In a free‐enterprise, private‐property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purpose—for example, a hospital or school. The manager of such a corporation will not have money profit as his objective but the rendering of certain services.
So the Friedman Doctrine is better summarized not as “profit above all”, but “obedience to your employer over all”. And indeed, many investors these days are willing to embrace missions beyond profit. Sometimes they will adjust their governance and even their legal charter to become a B-Corp, certified by B-Lab as having a mission that benefits (hence the B) society. Or they may just understand that they will be held accountable by powerful stakeholders.
Customers may stop buying from a company interested only in profit; employees may stop working, prospective investors might invest elsewhere, suppliers may stop supplying, or regulators might start regulating a bit more aggressively. Stakeholder theory responds to the Friedman doctrine by highlighting that sometimes the road to long-term profits is often lined with socially responsible behavior in the short-term.
And that’s the case made at the end of the New York Times article quoted above:
For the local, smaller companies that joined the Fair Elections Texas effort, supporting voting rights was important both for protecting civil rights and liberties and for protecting their ability to grow.
“We were created in Texas, we started in Texas, I’m a Texan, we want to grow here,” said David Najjab, the director of institutional partnerships at Gearbox, a video game company with headquarters in Frisco, Texas. “But if need be, we might have to look other places for expansion. Not that we’d leave — we’re still here — but it does make it difficult for recruitment.”
The company has more than 400 employees, Mr. Najjab said, and, in the booming world of video game software, it is constantly growing. Onerous restrictions on voting in Texas could harm that expansion, he said.
“It’s not a threat,” Mr. Najjab said. “It’s just, we need the best and the brightest from competition with the world. Video games are made worldwide. We want the best and the brightest. And if they don’t feel safe and their families don’t feel safe, it’ll be tough to get them here.”
So supporting voting rights is a twofer for Mr. Najjab: a worthwhile political goal, along with a wise business practice. But the Friedman Doctrine has been so influential, it’s also the only argument Mr. Najjab can make. Otherwise, Friedman will call him a thief–or even worse, someone who imposes taxes on investors to pursue his own ends:
What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers. For example, that he is to refrain from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation. Or that he is to make expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment. Or that, at the expense of corporate profits, he is to hire “hard core” unemployed instead of better qualified available workmen to contribute to the social objective of reducing poverty.
In each of these cases, the corporate executive would be spending someone else’s money for a general social interest. Insofar as his actions in accord with his “social responsibility” reduce returns to stock holders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers’ money. Insofar as his actions lower the wages of some employees, he is spending their money.
This case offers a number of difficult questions. Are Mr. Najjab and his fellow Texas business leaders are living up to the Friedman Doctrine? Is there something special about voting rights that would make your answer change if they were speaking out about another controversial political issue, like police violence, school funding, abortion, or war?
And most of all, do you agree with the Friedman Doctrine? 50 years later, you can find article after article “reconsidering” the doctrine, or even declaring it “dead”.
But I’m not so sure that’s the case–it seems more plausible to me that people are simply paying more attention to the parts of his famous article that have long been ignored through selective quotation–the parts about the rules of the game, fair and open competition, investors who care about more than profit, and most of all the fact that there are norms not embodied in law.
Without that last part, the Friedman Doctrine is little more than a morality of “Make me!”, in which businesses can do whatever they want in the pursuit of profit unless someone has the will or power to hold them accountable (such as customers or employers). This is a much more cramped moral vision than moral accounting, which recognizes that businesses have obligations to society whether or not anyone has the will or power to hold them accountable.