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Milton Friedman - a rebuttal |
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Wednesday, 25 April 2007 11:37 |
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My ambivalence reg CSR continues (This blog, over time, will capture how my thoughts mature in this area). Some amount of clarity emerged in the interim, that Corporate governance (my definition of which is "don"t screw up or take advantage of the society for the sake of profitability") has to be part of any company"s charter as it strives to increase shareholder value. CSR, on the other hand, is taking this theory to the extreme - in essence stealing from the owners without adherence to the contract between a CEO and the shareholders. I still subscribe to these views but an article from McKinsey is making me reexamine my stand. The concept of enlightened self interest Vs naked self interest shakens Milton"s theory that social good comes when companies make a profit. This article also seems to support my view that the definition of shareholder value needs to be reexamined - as I voiced during my first case(Ben & Jerry"s) during DardenDays. The pyramid analogy is quite interesting... The question I hope to investigate during MBA is: How does a leader drive an org to the top of the pyramid? A more important question: What do CEOs do to make their firm look attractive to IBankers whose definition of shareholder value isn"t going to deviate from narrow monetary value?
What does the public want from its institutions?
Daniel Yankelovich: The values of the generations that grew up before 1950 are embodied in the concept of enlightened self-interest—not naked self-interest, but enlightened self-interest. Enlightened self-interest is when you make a profit by meeting a need, by fulfilling a social function. The unintended consequence of the shift in moral values during the 1970s has been the ascendance of unenlightened self-interest—winning for yourself; I win, you lose. The Enron psychology was winning for yourself, being out for yourself. The rationalization was, “We didn’t do anything wrong, because we didn’t break the law.†Well, Enron did break the law, but many of the people who are undermining the trust of the public hold the view that morality simply means not breaking the law. To my generation, that’s moral blindness.... Americans want companies to make a profit but to make it by doing some good for others, not just themselves.
What in business ideology would have to change to arrive at that point?
Daniel Yankelovich: Business doctrines have to change. Ideologies like shareholder value are being abused to rationalize and justify outrageous behavior. One of the tests for whether companies are aligning themselves with a broader social engagement is the extent to which the doctrine of shareholder value loses credibility. I don’t think it’s going to be openly repudiated, but I suspect that, gradually, executives will stop making as much reference to it to justify their actions. It privileges one group, one constituency, over all the others, and it carries so much baggage now because it’s been so perverted and linked to short-term profits.
What needs to happen in order to build trust?
Daniel Yankelovich: The causes of mistrust are reasonably clear and addressable. The public believes that the ethical standards of business are too low. The mistrust will begin to dissipate when those standards improve. I’ve served on a number of boards and became familiar with their ethical standards. Visualize a pyramid. At the base of the pyramid are companies for which the main questions of ethical standards are “Is it legal? Can we get away with it?†The next level up the pyramid is the “smell test.†In most companies there will be one or more directors who will say, “Look, I don’t care whether it’s legal or not. Does it pass the smell test?†Those two levels currently cover most of the pyramid.
Now, both these levels are too negative to dispel public mistrust. They simply say, “Don’t do anything illegal or dishonorable.†Only a handful of companies, at the apex of the pyramid, hold a broader conception of truly enlightened self-interest that actively seeks to serve the public good instead of winning for yourself. Hopefully, within a decade the pyramid will show that the bottom two layers have shrunk and the top layer has broadened. That will be a real sea change and will introduce a new era of market capitalism.
Cheers!
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