INTEGRAL BUSINESS

CSR and Stockholder Value

Daniel O'Connor | Integral Ventures, LLC

Critics of corporate social responsibility often contradictthemselves when they attempt to use market theory toargue against the natural emergence of CSR within amarket economy.

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CSR and Stockholder Value

Daniel O'Connor | Integral Ventures, LLC

For nearly 40 years, economists have debated thequestion of whether or not corporations have anysocial responsibility beyond the delivery of profits totheir stockholders. During that same time frame,corporate social responsibility has evolved from acounter-cultural idea into a mainstream movementwith voluntary participation by countless corpora-tions from all industries.

Despite its popularity, orperhaps because of it, CSR remains as controversialas ever, with critics and advocates alike repeatingthe same arguments over and over again, withoutresolution.In a recent essay, Gary Becker of the University of Chicago addressed the perennial question: DoCorporations Have a Social Responsibility BeyondStockholder Value?

Do corporations have any responsibilitiesbeyond trying to maximize stockholdervalue, adhering to contracts, implicit aswell as explicit, and obeying the laws of thedifferent countries where they operate? Myanswer is "no", although maximizing value,meeting contracts, and obeying laws helpachieve many of the goals by thoseclaiming corporations should be "sociallyresponsible" by taking care of theenvironment, considering the effects of their behavior on other stakeholders, andcontributing to good causes. Still, laws andcontracts, and individual use of their ownresources, rather than corporate behavior,should be the way to implement varioussocial goals.In many respects, his answer to the question isaligned with Milton Friedman's well-known views onCSR, which are grounded in a positive neo-classicalmarket theory together with a normative preferencefor individual economic freedom. As far back as1962, in

Capitalism and Freedom

, Friedman pro-claimed that:

Few trends could so thoroughly underminethe very foundations of our free society asthe acceptance by corporate officials of asocial responsibility other than to make asmuch money for their stockholders aspossible. This is a fundamentally subversivedoctrine.In CSR's Grim Reaper, I presented an overview of my integral reconstruction of Milton Friedman'sperspective on CSR, highlighting the previouslyunexamined parallels between his view of howmarkets should and do work and the CSRadvocates' view of how socially responsiblecorporations should and do work with theircustomers, employees, investors, and other stake-holders.

I believe it applies equally well to GaryBecker's perspective.Without repeating this reconstruction, I will simplystate one of my conclusions: If market participantsconducted themselves as Becker and Friedmanapparently believe they really should (normativetheory) and already do (positive theory)—that is, ina manner consistent with

the mutual pursuit of transparency, choice, and accountability

in everymarket exchange—then it would not be unreason-able to claim that the only social responsibility of the corporation is to maximize its value tostockholders. Such a claim would be justifiablebecause it is premised on a pre-establishedstandard of conduct between the corporation and allits stakeholders—a standard that, not insignifi-cantly, would please all but the most radical of CSRadvocates.However, the burden of proof that corporateexecutives and other market participants actuallydo conduct themselves up to this standard wouldfall to Friedman, Becker, and all those who claimthat stockholder value is an adequate measure of corporate social responsibility. They would have todemonstrate that the CSR agenda is not

wrong

, but

moot

, simply because corporations and their stake-holders are already engaged in the mutual pursuitof transparency, choice, and accountability in everymarket exchange. Absent such a demonstration, Ihave to conclude that the CSR agenda is neitherwrong nor moot, but rather understandable as aresponse to the shortcomings in corporate conduct.Furthermore, if a corporation is voluntarily engagingin practices that its management or other interestedobservers label

CSR

, isn't it properly a matter for

If market participants conductedthemselves as Becker and Friedmanapparently believe they reallyshould and already do—that is, in amanner consistent with

the mutual pursuit of transparency, choice, and accountability

in every marketexchange—then it would not beunreasonable to claim that the onlysocial responsibility of thecorporation is to maximizeits value to stockholders.