Business discussion?
Alan Murray, CEO of Fortune, discussed corporate social responsibility in July last year. Please read his discussion and answer the following questions:
1. Based on the material we covered this week, whose view is economist Greg Mankiw's understanding of social responsibility consistent with, Friedman's or Carroll's? Why?
2. Do you agree with Mr. Murray's judgment of the three caveats and governments' ability and thus his view on the role of businesses in solving society's pressing problems? Why?
"Good Morning.
It has been nearly a year since the Business Roundtable released its statement of corporate purpose, putting the interests of employees, customers, communities and the environment on equal footing with shareholders. The change found widespread acceptance among leaders of Fortune 500 companies, and even among investors. Most of the criticism came not from people who disagree with the goals, but rather those who wonder how the words will be translated into action, and what metrics will be used to measure progress and hold companies accountable.
But there remain a few holdouts who cling to the idea of shareholder primacy. Ex-Exxon CEO Rex Tillerson–who did a turn as Trump’s Secretary of State–appears to be one of them. “I probably would have resisted that if I were still on the executive committee there,” Tillerson said of the BRT statement in a recent interview with Insigniam Quarterly. “I don’t think it’s healthy for a group of CEOs to get together and say we’re just all going to agree to behave this way—because everybody’s business is different. Their organizations are different. When you start trying to covey up like a bunch of quail to protect yourself, I’m not sure you’ve got your eye on your own shareholders’ interests.”
This weekend, economist Greg Mankiw–who served as chief economic adviser to President George W. Bush–weighed in with an op-ed piece in the New York Times. CEOs aren’t qualified to make broad social decisions, he argued. The BRT approach “expects executives to be broadly competent social planners rather than narrowly focused profit maximizers. It’s unlikely that corporate executives, with their business training and limited experience, have the skills to play this role well.” Maximize profits, he argues, and you have the best chance of maximizing social welfare.
Mankiw goes on to acknowledge three caveats to his welfare rule, in keeping with classical economics:
1) You need government to protect property rights and the rule of law, and prevent corruption.
2) While free markets may yield the largest economic pie, they do not ensure it is sliced equitably. Government must do that.
3) Market activities can have significant adverse side effects–like carbon emissions that lead to climate change–which may need to be corrected by government action.
Pretty big caveats, wouldn’t you say? In a theoretical world with well-functioning government, Mankiw’s view may make sense. But in the world we inhabit, where governments’ ability to address big problems like inequality and climate change has been heading south for decades, having our best business minds turn more attention to society’s pressing problems makes sense to me–for the sake of society, and for the long-term interests of their shareholders.
