March 27^th, 2014

 Should Social Enterprise Exist?

Nobel Prize winning economist Milton Friedman believed that businesses have the sole responsibility to increase profits, devoid of any social or environmental responsibility.  If that is the case, should socially focused businesses, or social enterprises, even exist?

By Amber Scott

What is the purpose of a business?  I remember a professor posing this question to us the first day of class.  At first, the class regarded it as a rhetorical question until he repeated it.  After a few more awkward moments of silence, one of my MBA classmates finally raised her hand and asserted “to maximize shareholder value”.

I recently went back and re-read Milton Friedman’s infamous September 13, 1970 New York Times article, aptly entitled The Social Responsibility of Business is to Increase its Profits.  In it he declares that corporate executives have the sole responsibility of increasing profit, and those who maintain that companies additionally have other social responsibilities are “preaching pure and unadulterated socialism” and “are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades”.  Strong words.

Fast forward forty years and we find that companies are still struggling to determine what (if any) social responsibility they have, only now the current buzz phrase being used is “Corporate Social Responsibility”.  Meanwhile, in recent years something interesting and different has sprung up: social enterprise.

Social enterprise is a structure in which an organization, either nonprofit or for-profit, uses business to advance social and/or environmental issues.  In other words, while these organizations do seek to gain a profit, their primary purpose and responsibility is fulfill their social mission.  Thinking about Friedman’s article, and the question posed by my professor, I was forced to ask myself:  should social enterprises even exist?

If one were to subscribe to Friedman’s perspective and line of logic, they may be inclined to believe that any self-proclaimed business (and executive officer) has a responsibility to focus on the best interest of the firm over all other social factors.  Therefore, social enterprise, a business perhaps “distracted” by social goals, should not exist.  However, when thinking about this question, one part of Friedman’s article caught my eye:

“That responsibility [of the business executive] 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 the society, both those embodied in law and those embodied in ethical custom.”

Here, Friedman acknowledges that corporations have the responsibility to adhere to the local law and ethical codes of conduct.  However, if that is the case, how can corporations in America focus on profit above all social responsibilities?  Our ethical narrative demands that this country be a place where social mobility through hard work and employment is possible for all.  Therefore, corporations must have an ethical and social obligation to provide workers with solid benefits and a living wage.

Additionally, environmental conservation has been an ethical imperative in this country for well over 100 years.  During his presidency, Teddy Roosevelt brought the issue to the nation’s consciousness and responsibility with his focus on creating national parks.  This change was highlighted in his famous 1910 speech where he stated that “Conservation is a great moral issue, for it involves the patriotic duty of insuring the safety and continuance of the nation.”  This clear, national obligation around conservation has been ingrained in this country’s ethical code of conduct for decades, meaning that our local custom should demand that corporations operating in America honor their responsibility of being stewards of the environment while conducting business.

These few examples demonstrate to me that social and environmental justice are the ethical customs of this great nation and therefore must be included in the consideration of any corporate business models.  Though, while however true this fact may be, it is clear that the majority of today’s corporations continue to believe that their sole responsibility is to maximize profit  outside of any ethical (social or environmental) responsibilities.  So until the day comes when all business recognize and factor the importance of these responsibilities into their business models, then social enterprises and nonprofit organizations are crucial staples in our society to fill this social gap and make our country  a more just and authentic society.