What is the Responsibility of Business?: Reflections on World Inc., Addressing Questions from Government, Corporate & Social Leaders

Since the release of Bruce Piasecki’s new book, World Inc.: When It Comes to Solutions - Both Local and Global - Businesses Are Now More Powerful Than Government, and the launch of our Blog World Inc. "For Better or For Worse?", we’ve received many insightful questions from government, corporate and social leaders. We have decided to use our next few blog entries as an opportunity to address a few of the questions we feel are important to our pursuit to have more dialog and interaction on how business going global is colliding with business going green.

Question: Milton Friedman, in his classic 1970 New York Times Magazine article titled, “The Social Responsibility of Business Is to Increase It’s Profits”, wrote “The discussion of the social responsibilities of business are notable for their analytical looseness and lack of rigor. What does it mean to say that business has responsibilities? Only people can 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 towards clarity in examining the doctrine of the social responsibility of business is to ask precisely what it implies for whom.” – Response? [Government Executive]

Milton Friedman was right, particularly at that time in social, industrial and human history. The question may be is Milton Friedman right today? We believe he is, but that does not necessarily mean that corporations don’t have responsibilities. Friedman’s point that “the first step towards clarity [toward social responsibility] is to ask precisely what it implies for whom” is as relevant today as it was 37 years ago.

This inspires the thought, “are corporations truly transforming their business practices, policies and products toward a more socially responsible ground, or are they simply reacting in the short term, to price and competitive signals abound in the marketplace and as heightened by popular press and the convergence of science and knowledge that for the first time in human history, has been assembled in a global way?”

There are multiple signals that tell us that our natural resources are limited, that the carrying capacity of planet earth is being tested, that global pandemics and natural disasters will increase in intensity and volume in years to come and that we need to work within our socio-political-economic constructs to develop more sustainable ways to produce and consume goods as a global society. The World Forum on Sustainable Development, the Coalition of Environmentally Responsible Economies (CERES), the Millennium Ecosystem Assessment by the United Nations, the Intergovernmental Panel on Climate Change (IPCC), and the Kyoto Treaty are all examples of how science and technology have been tangling with policy and social need for more than 20 years. What these global initiatives point to however is a world that is on the verge of a social, cultural, political and economic transformation.

The result may be great cultural and systems change like what resulted from the Industrial Revolution, Scientific Discovery era or Renaissance period. We are just beginning this important transformation to a more sustainable society – thus as we grow, learn and mature as social capitalists we will inevitably stumble a bit, particularly as we define the role of government and business as they pertain to individual and social responsibility. The world is just beginning this transformation, so it’s a challenge to reflect in real time on what works and what doesn’t.

Businesses have responsibilities to their shareholders, private investors, customers and communities in which they do business in by way of their leadership. Milton Friedman stated that business lacked rigor and analytical strength when it came to social responsibility. However, in this 21st Century new forms of social enterprise have been born out of the need to identify, measure, and report social, environmental, governance and health related metrics. Firms and organizations like the Investor Responsibility Research Center, Innovest Strategic Value Advisors, Calvert, Domini Social Investments, SocialFunds.com, Dow Jones Sustainability Indexes, Standard & Poor's, among hundreds of mutual fund firms like Portfolio 21 and Walden Asset Management and other rating agencies have developed their own financial tools and processes for measuring corporation’s impact on society through environment, governance, and social metrics.

The money and market innovators noted above have added analytical rigor and strength to the notion of social responsibility, and have made what Friedman once cited as a “looseness” a multi-trillion dollar industry with teeth.

Mark C. Coleman
Senior Associate, AHC Group, Inc.
Mark@ahcgroup.com