Milton Friedman Was Right

"Corporate social responsibility" is bunk.

Milton Friedman famously declared that the sole business of the managers of a publicly held corporation was to maximize the value of its outstanding shares. Any effort to use corporate resources for purely altruistic purposes he equated to socialism. He proposed that corporation law should prevent managers from straying off the reservation to join the altruists, a power now almost universally granted them by state legislation.

At a conference 34 years ago, celebrating Friedman's 60th birthday, I presented a paper questioning that dictum by noting that the vast part of apparently nonprofit-oriented behavior by corporate managers was really--and necessarily--a profit-maximizing response to business, social or political pressures dressed up to look like something else. For such a strategy to be successful, the behavior had to appear to be nonprofit maximizing, and, of course, had to be called something like "social responsibility."

Since it was difficult or impossible to distinguish a profit motive from a charitable motive in any particular corporate action, a strong rule against corporate altruism, as Friedman was advocating, would invite judges to examine the propriety of a significant set of managerial decisions. I argued that American corporation law had traditionally had a strong "business judgment" rule whose principle aim was to prevent judges from even engaging in that kind of examination, which they were perhaps more likely to get wrong than to get right. Thus, if any plausible basis existed for a bona fide managerial decision, no matter how charitable it looked, I argued, we did not want a stronger rule that would invite judges to second guess managers.

Henry G. Manne

For all you Wal-Mart and oil company critics. This cannot be repeated often enough:

...the sole business of the managers of a publicly held corporation was to maximize the value of its outstanding shares.