By Tina M. Patterson, Esq.
“There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.” –Milton Friedman
In 1970, Nobel Prize winning economist Milton Friedman wrote the New York Times essay “The Social Responsibility of Business is to Increase its Profits.” Although published over 50 years ago, Friedman’s premise that a public company must maximize profits and shareholder value above all other goals remains an influential philosophy in the corporate world today.
Yet, while businesses have profit obligations to their shareholders as suggested by Friedman, they must not ignore the countless stakeholders who contribute to the success of the business, enabling it to generate those valuable profits which they hold so dear. To delineate, shareholders own part of a public company known as stock, while a stakeholder has an interest in the performance of a company other than stock performance or profitability.
Business stakeholders constitute a vital role in the life and health of the company. Stakeholders include the workers of the business, who are the true driving force allowing any company to operate and serve its mission. Stakeholders also include the community in which the business is located, which influences how the business will impact and vitalize the local economy. Finally, and perhaps most importantly, the stakeholders of a business include its customers, consumers, and clientele, the people who patronize the business, thus feeding it profits that allow it to thrive.
Contrary to Friedman’s theory, the social responsibility of business is not solely to maximize profits, but to prioritize the well-being of the clientele its products and services were designed to serve. Furthermore, the two goals- maximizing profits and prioritizing consumer well-being- are not mutually exclusive and are equally significant in sustaining the life and profitability of the business.
In fact, Friedman’s philosophy of social responsibility would actually support a distinct goal of consumer well-being. While he noted that the increase of profits was the main objective of a business, he warned that this was so as long as the business stayed within the rules of the game, meaning engaging in open and free competition without deception or fraud. In other words, according to Friedman, businesses must increase profits and refrain from engaging in dishonesty to the market.
In an ideal world, corporate entities would fulfill both of these social responsibilities, and communities would thrive from the bountiful resources and honest practices manufactured by the company.
However, to many companies, these goals do not go hand in hand, and thus too often, profitability is glorified over doing right by the most important stakeholders of the business- consumers. When companies engage in practices that harm or run afoul of their ethical obligations to consumers and clientele, lawful regulations are called upon to step in to protect consumers. Such misguided corporate behaviors that may be harmful to the consumer include selling bad products and engaging in fraudulent services.
An egregious example of financial harm is the recent Wells Fargo cross-selling, in which Wells Fargo employees engaged in aggressive and fraudulent sales tactics by opening new accounts and issuing debit or credit cards without customer knowledge, in some cases by forging signatures. The scope of the scandal was so widespread that Wells Fargo reached a settlement with the Justice Department in which it agreed to pay $3 billion to settle criminal charges and civil action emanating from how it duped customers.
Additionally, Peloton, a home exercise company, came under fire when reports of faulty product design were initially refuted, until mounting pressure, along with numerous injuries and one death, led to a recall of its equipment last month.
Finally, in 2020, Chipotle Mexican Grill, a global fast food chain, agreed to pay a $25 million fine stemming from the chain’s issues with foodborne illness, in which more than 1,100 people got sick as a result of the adulterated food between 2015 and 2018.
All three of the preceding examples are extremely profitable publicly traded companies, who are no doubt fulfilling Friedman’s primary objective of increasing profits, but seem to be struggling to conduct affairs without deception or fraud.
While regulations are in place to prevent and punish corporate misconduct, at times these laws are not far reaching enough due to the legal threshold for culpability or government failure to hold corporate structures accountable to the public.
However, this does not render harmed consumers powerless. Instead, it provides a responsibility to remain diligent in exposing bad practices or actions that lead to harmful results to consumers.
The first response that usually comes to mind is to file a lawsuit, and this is where attorneys can step in as independent advocates seeking justice to clients who were wronged by corporate malpractice. The legal system can be a powerful tool to fight back against wrongdoing, but it is not the exclusive means.
Media exposure is another effective tool in achieving closure and public accountability because it allows the masses of people to learn about the harm done by companies that would continue the harm as business as usual if not for the mass exposure.
Lastly, community advocacy can be a powerful instrument to raise awareness and create campaigns about specific business practices that are harmful to the communities in which they serve. Community advocacy is particularly effective in exposing and overturning immoral social responsibility, such as racial discrimination and segregation. A prime example is the 1955 Montgomery bus boycott led by civil rights luminaries such as Rosa Parks and Dr. Martin Luther King, Jr., who successfully sustained 13-month mass protest that ended with the U.S. Supreme Court ruling that segregation on public buses is unconstitutional. Additionally, Reverend Leon H. Sullivan, the first African American on the board of directors of General Motors, led a 1960 boycott in Philadelphia titled the Selective Patronage Program. With the slogan, “Don’t buy where you can’t work,” Reverend Sullivan successfully rallied community support against businesses that engaged in racial discrimination by refusing to hire African-Americans.
While profit is the number one driver of business, the end goal must be the overall safety and well-being of the products and services intended for consumers. When businesses cross the ethical lines of harm and deception, profits are threatened, as money is lost due to paying significant fines as punishment for engaging in harmful and dishonest practices. Credibility is also lost, and public trust in the company is diminished, two intangible assets that often prove more valuable than any dollar amount. Furthermore, consumers are not powerless in fighting back and are not limited in their options or choices in refusing to support a company that harms or disrespects their community.
Therefore, it is in the best interest of any business to prioritize their clientele in equal standing with their profits by ensuring the quality of their products and services are safe and carried out with the utmost integrity. Not only is this the most beneficial route for all parties involved, but in applying Friedman’s theory, it is the fair and just thing to do.
Tina M. Patterson is the Principal Attorney of Patterson Justice Counsel, PLLC. She is a Detroit attorney licensed in the State of Michigan and Federal Court for the Eastern District of Michigan, and a racial justice advocate who fights for equity both in the courtroom and in the public domain.
