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Milton Friedman Is Wrong

October 21, 2015

Benefit CorporationsI think he has always been wrong, but then, legally, he was more right than I. Friedman once said in a 1970 NY Times Magazine article that “businesses’ sole purpose is to generate profit for shareholders.” The title of that article is “The Social Responsibility of Business is to Increase its Profits.” My understanding of “normal” corporate charters is that legally, increasing shareholder wealth is the goal of the corporation — profit. And if it’s a publicly held corporation, that is doubly true. The question is, how is that working for you? Well, if you’re an expense (employee), not so good. If you’re an owner, or shareholder or highly paid executive,it  seems to be working fine. If you’re a corporate raider, then any sniff of lack of attention to increasing shareholder wealth is an opportunity to wreak havoc.

So for large public companies, while they certainly could invest in some socially responsible projects, it had to be kept to a very small percentage of their time and treasure to avoid being “called on it” by some shareholder activist. This also meant that the focus tends to be on the numbers. It sure isn’t engaging for employees to be working to increase corporate profits. They know they don’t often see any significant gain from that focus on profitability and it doesn’t provide an inspiration.

Enter the Benefit Corporation or “B Corp.” These are for profit corporations who also define a social benefit to be provided to the community through their business operations. Some B Corps are “certified” by the not-for-profit “B Lab.”

B Corps are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency.

Today, there is a growing community of more than 1,000 Certified B Corps from 33 countries and over 60 industries working together toward 1 unifying goal: to redefine success in business.

In the United States, as of this writing, there are some 30 or so states that have B Corporation laws/charters and 5 more laws are pending. What is driving this movement?

My opinion is that we are slowly coming around to the understanding that in order to have fully engaged employees, there needs to be a vision: a purpose that is bigger than simply making a profit. Employees, according to Daniel Pink need three things (given compensation is not an issue) — Mastery, Autonomy and Purpose. We especially see this need for a meaningful purpose in the Millennial workforce. The interesting thing is that there is no reason why providing a Social Responsibility goal for the corporation should exclude also making a profit. Why not both?

I am heartened by this movement to encourage public corporations to be socially responsible from the moment of incorporation. Closely held private corporations have always been able to choose to be a good corporate citizen without governance worries. And now that opportunity is formalized for public corporations as well. Want an engaged workforce? Give them a vision that is bigger than the organization; help them provide an inspiring service or product to their community. And make a profit along the way.

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