Milton Friedman Was Right (For the Wrong Reasons)

A new study by academic experts at Tuck shows that social responsibility can strengthen customer loyalty--if the program affects the customer experience. Intuitively, this makes sense: Customers, employees, stockholders, and suppliers prefer to associate with companies and brands that do good things (save the planet, raise money for good causes, buy local products). Other studies and surveys have also found that customers like buying from companies that make a difference.

A number of studies and meta-analyses have confirmed the positive link between social responsibility and profitability. This doesn't mean that corporate social responsibility is the cause of higher profitability, but there is a definite connection.

Of course, social responsibility entails an economic calculation as well as a marketing calculation. And that's where the views of economist Milton Friedman come in.

Decades ago, Friedman famously called on businesses to focus on their "social responsibility" to serve shareholders by increasing profitability. In other words, profits come first.

These days, analysts and industry observers have noted that many social responsibility programs benefit the company economically, by cutting costs, for example, or by polishing the firm's image for marketing reasons (in the interest of sales and profits).

When heavyweights like Walmart, Procter & Gamble, and McDonald's throw their considerable marketing and economic power behind an issue, they can make a real difference, which gives their brands a boost and helps their competitive position. And companies that seek to protect their supply chains or develop unique products wind up helping their sales and profits while they help the environment, as this recent Time article points out.

So it turns out that Milton Friedman was actually correct: His view of businesses being responsible primarily to shareholders/owners underscores the economic importance of corporate social responsibility in the 21st century.

Businesses that don't act in a socially-responsible manner will be at a disadvantage in maintaining customer loyalty, building profits, and satisfying their shareholders. Social responsibility turns out to be a win-win for businesses and society, in a bottom-line way that Friedman may never have thought possible.