Back in 1970, economist Milton Friedman stated that “the social responsibility of business is to increase its profits.” The purchase of common stock and the looming obligation to return liabilities ensures that at the end of the day a business is making decisions that will benefit its investors and creditors. Without the stockholders and banks providing the necessary assets to stimulate and maintain a company’s daily operations, the business is left at a standstill with a trickling cash flow. So when the CEOs of hundreds of companies announced their support for Black Lives Matter and donated millions of dollars to racial justice campaigns, they did so with investors in mind.
The economy is anything but a static system. It is evolving and changing with our social institutions, the ones that dictate our culture and values, and that tell us what is wrong and what is right. Had executives remained unresponsive to issues such as climate change, Black Lives Matter, COVID-19, or the tidal wave of current events flooding newsfeeds, their businesses would have suffered. In order to continue leading viable and potentially high-profit companies, CEOs of businesses should be making the call to support the organizations and causes that their customers do. After all, if a company’s supply chain is unsustainable, and the Gen Zers who care deeply about the environment are supposed to be their next generation of customers, then a company’s most profitable decision in the long run is to reevaluate its supply chain to ensure that earnings remain high now and into the future.
The sentiment that Friedman expressed is one tightly held by corporations around the world. At the end of the day, businesses will only remain viable if they have a steady cash flow. Profit, profit, profit is the critical line of thinking that flows through every industry. In our race to keep up with the Joneses, we have pillaged the environment, scattering our single-use plastic water bottles on the ground as a messy reminder of our quick, fleeting presence. Back in September 2019, the group Break Free from Plastics, which is made up of environmentally conscious individuals and organizations, organized a “World Clean Up Day” in 51 countries. The coalition collected half a million pieces of plastic waste, 43% of which were marked with a clear consumer brand—and those brands know this. Coca-Cola, Nestle, and PepsiCo are among the leading producers of pollution and have acknowledged their role as headliners in this environmental crisis. So what is the grand solution proposed by these corporations?
Recycling.
Do you hear that growing clamor of big-name brands whispering “it’s your fault?” Do you feel the stab of fingers pointing at you? You being the consumer, of course, the person drinking all those Diet Cokes.
In the 1950s, big beverage companies like Coca-Cola started the non-profit Keep America Beautiful. The mission of the non-profit was, and still is, “to educate and encourage environmental stewardship in the public.” Keep America Beautiful collaborated with the Ad Council (the creators of Smokey the Bear) to launch and maintain one of the most influential marketing campaigns in history. The advertisement initiatives spearheaded by Keep America Beautiful inspired behavioral change within consumers, creating a movement of environmental consciousness rooted in the belief that recycling could save the planet, people, and world. Recycling became the perfect band-aid to cover the bullet wound of production wastefulness shot into the body of the Earth’s natural resources. The masterful work of Keep America Beautiful and the Ad Council shifted the public eye from businesses to individuals, pushing the responsibility of cleaning up from producers to consumers. Legislation that aimed to diminish single-use plastics was struck down in a number of states, including Vermont and Oregon. Today we see that our justice system “punishes individual litterers with hefty fines or jail time, while imposing almost no responsibility on plastic manufacturers.” Most consumers have found themselves in a classic “Babies in the River” conundrum: Do we continue to act individually to solve an issue? Or do we climb upstream, find the source of the issue, and fight back as the collective institution of society?
How many reusable water bottles will it take to end single-use plastic?
We cannot accept individual responsibility for a problem that we have minimal control over. Consumers are the last step of the supply chain. It is not me, you, or the other girl over there with yellow Hydro Flask that are accountable for the production processes of these ginormous corporations. If companies had the power to shift the burden of unsustainable practices to the shoulders of their customers, then they have the power to reclaim this responsibility.
One of the ways that businesses are cleaning up is through ESG reporting. ESG stands for Environmental, Social, and Governance which include initiatives to cut back on carbon emissions, foster diversity on executive boards, and encourage the practice of sustainable, ethical, and conscious business practices. ESG reporting and metrics expose the impact of a company on the world as well as its long-term health. When companies tie in all three elements of ESG into their reports, they are effectively stating to investors that they plan to be “viable and profitable for the long-run.” Today, “88% of investors believe companies that prioritize ESG initiatives represent better opportunities for long-term returns than companies that do not.” If the social responsibility of a company is to increase its profits, then businesses that are not pursuing ESG goals are not going to be in business much longer. Corporations run on investors and creditors who trust that those leading the corporation will make profitable, and now sustainable, decisions.
Yes, the social responsibility of business is to increase profits. But the partners of society and business are intertwined in a melody of production and consumerism that drives our economy in a capitalistic dance. When one partner sways from the rhythm, the other needs to change its footing, otherwise, both will stumble and fall.