INTEGRAL BUSINESS

CSR and Stockholder Value

Daniel O'Connor | Integral Ventures, LLC

Critics of corporate social responsibility often contradict

themselves when they attempt to use market theory to
argue against the natural emergence of CSR within a
market economy.
CSR and Stockholder Value
Daniel O'Connor | Integral Ventures, LLC
For nearly 40 years, economists have debated the
question of whether or not corporations have any
social responsibility beyond the delivery of profits to
their stockholders. During that same time frame,
corporate social responsibility has evolved from a
counter-cultural idea into a mainstream movement
with voluntary participation by countless corpora-
tions from all industries.1 Despite its popularity, or
perhaps because of it, CSR remains as controversial
as ever, with critics and advocates alike repeating
the same arguments over and over again, without
resolution.
In a recent essay, Gary Becker of the University of
Chicago addressed the perennial question: Do
Corporations Have a Social Responsibility Beyond
Stockholder Value?2
Do corporations have any responsibilities
beyond trying to maximize stockholder
value, adhering to contracts, implicit as
well as explicit, and obeying the laws of the
different countries where they operate? My
answer is "no", although maximizing value,
meeting contracts, and obeying laws help
achieve many of the goals by those
claiming corporations should be "socially
responsible" by taking care of the
environment, considering the effects of
their behavior on other stakeholders, and
contributing to good causes. Still, laws and
contracts, and individual use of their own
resources, rather than corporate behavior,
should be the way to implement various
social goals.
In many respects, his answer to the question is
aligned with Milton Friedman's well-known views on
CSR, which are grounded in a positive neo-classical
market theory together with a normative preference
for individual economic freedom. As far back as
1962, in Capitalism and Freedom, Friedman pro-
claimed that:3
Few trends could so thoroughly undermine
the very foundations of our free society as
the acceptance by corporate officials of a
social responsibility other than to make as
much money for their stockholders as
possible. This is a fundamentally subversive
doctrine.
In CSR's Grim Reaper, I presented an overview of
my integral reconstruction of Milton Friedman's
perspective on CSR, highlighting the previously
unexamined parallels between his view of how
markets should and do work and the CSR
advocates' view of how socially responsible
Page 1
corporations should and do work with their
customers, employees, investors, and other stake-
holders.4 I believe it applies equally well to Gary
Becker's perspective.
If market participants conducted
themselves as Becker and Friedman
apparently believe they really
should and already do—that is, in a
manner consistent with the mutual
pursuit of transparency, choice, and
accountability in every market
exchange—then it would not be
unreasonable to claim that the only
social responsibility of the
corporation is to maximize
its value to stockholders.
Without repeating this reconstruction, I will simply
state one of my conclusions: If market participants
conducted themselves as Becker and Friedman
apparently believe they really should (normative
theory) and already do (positive theory)—that is, in
a manner consistent with the mutual pursuit of
transparency, choice, and accountability in every
market exchange—then it would not be unreason-
able to claim that the only social responsibility of
the corporation is to maximize its value to
stockholders. Such a claim would be justifiable
because it is premised on a pre-established
standard of conduct between the corporation and all
its stakeholders—a standard that, not insignifi-
cantly, would please all but the most radical of CSR
advocates.
However, the burden of proof that corporate
executives and other market participants actually
do conduct themselves up to this standard would
fall to Friedman, Becker, and all those who claim
that stockholder value is an adequate measure of
corporate social responsibility. They would have to
demonstrate that the CSR agenda is not wrong, but
moot, simply because corporations and their stake-
holders are already engaged in the mutual pursuit
of transparency, choice, and accountability in every
market exchange. Absent such a demonstration, I
have to conclude that the CSR agenda is neither
wrong nor moot, but rather understandable as a
response to the shortcomings in corporate conduct.
Furthermore, if a corporation is voluntarily engaging
in practices that its management or other interested
observers label CSR, isn't it properly a matter for
that corporation's own stakeholders—including its
current and prospective stockholders—to evaluate
this conduct according to their own individual value
functions? In fact, isn't that what they already do,
with or without the blessings of economists? It
seems entirely inconsistent with both the positive
and the normative market theories of Becker,
Friedman, and the like to argue that, when it comes
to one particular set of business issues that fall
under the banner of CSR, we otherwise rational,
self-interested, self-organizing market participants
have mysteriously lost our way amidst the confus-
ing and enticing rhetoric of social responsibility.
If markets are as efficient as Becker
and Friedman have long claimed
and if markets ought to be as free
and open as they have long argued,
then shouldn't we allow market
participants, rather than market
observers, to determine precisely
where to set the evolving standards
of corporate social responsibility?
If markets are as efficient as Becker and Friedman
have long claimed and if markets ought to be as
free and open as they have long argued, then
shouldn't we allow market participants, rather than
market observers, to determine precisely where to
set the evolving standards of corporate social
responsibility? Even if markets are not as efficient
or as free as Becker and Friedman might like to
believe, what market-based justification is there to
denounce the entrepreneurial efforts of those
market participants whose exchanges have self-
organized into the CSR movement? Critics of
Daniel O'Connor is the managing director of Integral
Ventures, a strategy consultancy committed to foster-
ing more innovative and sustainable ways of doing
business. He has been a pioneer in the development of
integral praxis in business and economics, having
authored numerous articles and essays in this
emerging field.
email: daniel@integralventures.com
website: www.integralventures.com
Page 2
corporate social responsibility often contradict
themselves when they attempt to use market
theory to argue against the natural emergence of
CSR within a market economy.
I would like to believe that this perspective could
transform the decades-old pro-market/anti-market
debate over CSR into a more constructive dialogue
about how we can foster the higher standard of
market participation in which all of us, in our
various roles as customers, investors, employees,
managers, and directors, pursue mutually-agreed-
upon and ever-evolving levels of transparency,
choice, and accountability in all our market
exchanges. This is the Integral Value Proposition—a
market-based, socially-conscious method of creat-
ing real value for everyone in and around the
corporation. It is not only the way markets are
supposed to work, but the way they really do work
when they are at their value-creating best.5
This July 2005 work is licensed under a Creative Commons
Attribution-Noncommercial-No Derivative Works 3.0 License.
1
See for example the corporate membership of Business for
Social Responsibility: www.bsr.org.
2
Gary Becker. (2005). “Do Corporations Have A Social
Responsibility Beyond Stockholder Value?” The Becker-Posner
Blog. http://www.becker-posner-blog.com/archives/
2005/07/do_corporations.html. Retrieved July 24, 2005.
3
Milton Friedman. (1982). Capitalism and Freedom. Chicago:
University of Chicago Press, 133.
4
Daniel O'Connor. (2005). “CSR’s Grim Reaper.” Catallaxis.
http://www.catallaxis.com/2005/02/csrs_grim_reape.html.
Retrieved July 24, 2005.
5
Daniel O’Connor. (2003). “A Crisis of Vision: Toward a More
Integral Economics.” Catallaxis. http://www.catallaxis.com/
2005/02/a_crisis_of_vis_1.html. Retrieved July 24, 2005.
Catallaxis explores the potential for a more integral
approach to the business and economic challenges of
our time. It features original articles and essays,
thoughtful reviews and commentary, and referrals to
other work in the field.
To search the archives and subscribe to future
issues, visit www.catallaxis.com.