Profit without Honor

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The socially responsible investing (SRI) bandwagon rolls on.

CNBC:

Longtime hedge fund manager Paul Tudor Jones on Wednesday critiqued the long-held belief that companies should exist for the sole purpose of generating profits.

Jones, whose remarks came during a JUST Capital event with CNBC’s Andrew Ross Sorkin, said [that it’s] a philosophy that allows corporate boards to neglect issues of equity in the workplace and ultimately undermine the stability of broader U.S. society.

“When you just look and say that the only thing that a company has to worry about is making a profit, it gives that company a pass not to pay attention to pay equity, not to pay attention to gender equity, not to pay attention to racial equality. Not to pay attention to a whole host of social factors that at the end of the day are the basis and the foundation of a strong, vibrant society,” Jones said.

But these are matters best hashed out in public debate and where necessary, legislatures, not boardrooms.

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How Advocates of ‘Corporate Social Responsibility’ Distort Shareholder Power

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Many years ago, Milton Friedman explained something that should never have needed explaining, when, writing for the New York Times Magazine, he reminded his readers what —and whom — a company is meant to be for:

In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to [the] basic rules of . . . society, both those embodied in law and those embodied in ethical custom. . . .

What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers.

The executives who retool a company’s mission to suit a particular conception of “social responsibility” are spending shareholders’ money on a moral agenda unrelated to company objectives, an affront that’s only made worse if their crusade depresses returns, share price, or both.

Friedman was writing in 1971. Since then, like so many bad ideas, corporate social responsibility has become institutionalized. To take a recent example, in 2017 JP Morgan Chase gave $500,000 to the Southern Poverty Law Center, an organization that, sadly, has strayed far from its original ideals. Had they learned of it, this gift would probably have irritated a good many shareholders. The employee who had to justify it was — you guessed it — the bank’s “head of corporate responsibility,” a title that signifies how deep the rot has gone.

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