Conscious Capitalism

When I was in law school, my Business Organizations professor, a really nice and smart fellow named Tony Luppino, handed out an interview with Milton Friedman in which he stated that the only social responsibility that a company has is to increase profits. The argument goes something like this, if you are elected to the Board of Directors of a company, your stated purpose is to make money for the people that voted for you. The people who elected you didn’t vote for you so you could use the company to pursue your vision of a better world, the shareholders elected you so you could make decisions in line with the fiduciary duty you have to them. Your duty is to the company, not to the rest of the world.

If you’re elected to the board of directors of a cigarette company, for example, you should be focused on selling more cigarettes rather than reducing their prevalence and their propensity to make people addicted to something that eventually makes them sick and shortens their life span.

There’s a movement away from Friedman‘s viewpoint. Many companies are showing that sometimes what’s best for the world, in the long run, may also be best for business. Companies like Google (GOOG) (the one that stands out the most to me), Microsoft (MSFT), Whole Foods (WFMI), Berkshire Hathaway (BRK-B). Henry Ford was once famously sued by his shareholders for pursuing what was his vision: that every American be able to own their own automobile. He was focused on making cars more affordable rather than doing what some shareholders believed he should have been doing, which was maximizing shareholder value.

Google stands out because of their motto, “don’t be evil,” and for their drive to make things better. To make knowledge more available. They recently held a contest for someone to make the world a better place. And they were willing to invest up to $10 million in the idea. It was venture capital. They weren’t running it as a charity – they were running a business. They were going to make money off of the idea, if possible. I think that’s reasonable. You can make the world better and make money at the same time. It’s possible, and it’s what a lot of companies are shooting for.

On the other side of the coin, there’s the Bill and Melinda Gates Foundation, which is an effort to make the world a better place with no possibility of making money. The Foundation has a directive to spend all of its money in the next 50 years, so they’re shooting to make an immediate impact. They could have set up the Foundation so it only paid out the required 5% distribution to remain a charitable foundation, and it would have lived on well beyond them. They would have been historically very famous if they had chosen to dole out their money this way. They didn’t. They don’t take money from other people, either (with the exception of Warren Buffett – whom they accepted about $30 billion from). If you want to help the Foundation, they’ll tell you that you should donate to their causes, not to them. The money in the Foundation came from Bill Gates‘ company, and he turned it around and used it in his attempt to reduce poverty and improve education.

The movement toward business that gives back is an important one, but the lines aren’t clearly drawn. My brother-in-law is starting a company that he believes will make the world a better place. The tough part comes in when his shareholders, like Henry Ford’s, accuse his board of not putting shareholders first. Not everyone has the same plan of making the world a better place that business visionaries do. What happens when shareholders challenge the companies plan. Worse yet, what does a company do when faced with the possibility that it won’t be profitable? Does it stick to its goal of making the world a better place? What comes first? How do you balance the two things? Friedman’s view keeps this clear cut and simple. People know their roles and can make logical decisions according to those roles. In some ways it’s hard to disagree with that. The new way is harder, but it also has the potential to be better. Companies that care about the world (like my brother-in-law’s!) have power. It’s a form of technology, really. The same way products keep innovating to make them more efficient and useful, companies seem to be at the next stage of their innovation. They can be about making money and doing good at the same time. What do you think? Do you agree or disagree with Friedman’s take in the clip above? Don’t be evil and thanks for reading.