Marketing The Social Responsiblity of Business

I just finished rereading the 2005 Reason magazine exchange between Whole Foods founder and CEO John Mackey, Milton Friedman, and Cypress Semiconductor founder and CEO T.J. Rodgers, revisiting Friedman's famous argument about the social responsibility of business. I'm not sure what my thoughts were when I first read the article on its initial publication date, but I'm now pretty throughly convinced that there isn't much substantial disagreement among any of the three participants, other than differing views on the best marketing strategy for selling an ideology. And in that respect, I think Mackey wins hands down. If we lived in an alternate universe in which the settled majority view was already thoroughgoing Randian, Rodgers' and Friedman's strategy would make sense, so as to avoid any potential deviation from the norm. But, alas, we don't live in such a world.

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The interesting part, I

The interesting part, I thought, was the 'limited covenant' analogy.

Mackey is essentially arguing that a founder of a company can create a covenant binding all future shareholders to a vision laid out by the founder. That's what he means when he says "[Charity] programs would be completely justifiable even if they produced no profits and no P.R....because I believe the entrepreneurs, not the current investors in a company's stock, have the right and responsibility to define the purpose of the company."

Friedman doesn't respond to this and Rodgers is vague about but seems to reject it, saying the shareholders would have to go along voluntarily.

Mackey is right

I'm afraid that Mackey is right in this case. Although his arguement would work against post-hoc philanthropy. If a company were set up for profit, got it's initial investors interested on this basis, continued in this vein, but then at some point switched to philantrhopic giving his argument doesn't hold water.

Interesting point. How would

Interesting point. How would this be implemented though? In the founding documents of corporations should people like Mackey write a clause like "The Corporation reserves the right at any point to donate up to 5 percent of its profits to charitable causes," and if no such clause is added then charitable donations are prohibited?

Initially I thought this would hamstring companies wanting to engage in PR charity, but they could probably write some constraining clause, so it would be fine.

Also, a comment from another part of my life. In LDS circles people occasionally complain that Mariott hotels have porn in them and the Mariotts, who are Mormon, shouldn't be profiting thereby. Replies usually invoke shareholders and who has the right to profits, but if such a covenant could have been created then the rights would be clearly defined and people would quit arguing over them.

I think a previous covenant

I think a previous covenant is absolutely necessary for the company to engage in charity. Engaging in charity afterwards using a control of the majority vote is breaking an implicit contract thatĀ  the company was founded for profit.

Take a company like New York Times, they own about.com which is in my opinon a terrific asset, yet they lose money by trying to subsidize their socialist paper.

Take Pirelli, maybe the best tires in the world,but shitty company becauseĀ  it keeps pourring its profits in the football club (it's call football not soccer, deal with it) Milan AC.

 

A shareholder contract should define clearly the goals of the company and protect the shareholders from philantropic behavior.

Friedman wins in the long run

I still like Friedman's argument best. At the time WholeFoods was really up-and-coming. Now is it really such a great company? How's his stock doing?