 |
| Stuart Hayashi |
People say, "Corporations should have 'social responsibility,' making charitable donations and paying high wages, instead of moving their operations to Mexico where labor's cheaper! Shareholder greed be damned!"
But a corporation's primary obligation is to maximize shareholder profit. Each stockholder can decide for himself what to do with his money afterward.
Managers oversee the usage of the money the shareholders put into the corporation, meaning corporate capital is the shareholders' money; not the managers'. Thus, capital should be used for the shareholders' benefit first.
The CEO's job is to watch over the shareholders' money, as banks do for depositors.
When you deposit your money in a bank, you entrust the establishment to safeguard it. Even if the bank takes your cash and invests it elsewhere, you count on the institution to return all your cash should you choose to withdraw it.
Imagine, one day, you decide to withdraw your money and discover half of it missing from your account.
"What happened?" you ask.
"Social responsibility," chuckles the teller. "Our establishment is already rich, so we took half of every clients' account and gave it to charity."
"Without my permission?" you say. "Stealing!"
Cries the teller, "Don't you believe in charity?"
"Yes. But it's my money. You're a steward who makes money from watching over mine, but that doesn't entitle you to embezzle it. When I want to donate to a cause, I can withdraw some money from this bank and donate it to the foundation of my choosing.”
The same ethics apply to publicly-traded corporations.
When you purchase corporate stock, you're depositing money into the corporation for good use, and entrusting the corporation to either make sure that it'll try to keep your shares just as valuable as before or make even more money for you.
The amount of money you have in stocks can legally decrease, unlike the sum you deposit in banks, since fluctuating stock prices determine your corporate assets' monetary value, versus a bank's tangible dollar reserves. But the corporations' responsibility, like banks', is still to try to avoid losing your money.
Imagine you deposit $5,000 into a corporation by purchasing stock, and, by the year's end, the total value of all your shares shrinks to $5.
"What happened?" you ask.
"Socially responsibility," chuckles the CEO. "We took the capital raised from the purchase of our newly issued shares, and, instead of investing it, we donated it to charity."
A "socially responsible" investor is supposed to be a pushover and say, "Wonderful!"
But instead, say the truth: "That's wrong! When I deposited my money into this corporation, I entrusted you to invest it. You're a steward who makes money from watching over mine, but the capital I put into this corporation still belongs to me. If you tried to profit the corporation but lost money anyway, that'd be one thing, but you wasted stockholders' money intentionally.
Cries the CEO, "Don't you believe in charity?"
"Yes. But I invested in your company under the explicit agreement that you'd use my cash to make more money for the corporation and hence myself. When I want to donate to charity, I can sell my shares and give the proceeds to the foundation of my choosing."
One could say that, if a corporation warns potential shareholders, before they purchase newly issued shares, that it plans to later make charitable donations, no harm's done, since the shareholders consent to this. True enough.
But it's also true that it's not heartless for corporations to bestow no charity. It leaves the decision of what to do with corporate earnings to each individual shareholder.
If it's immoral for a corporation to donate none of the money deposited into it to charity and instead give that option to shareholders, then it's also immoral for a bank to donate none of the money deposited in it to charity and let its clients keep their dollars.
The same applies when a corporation wastes money by paying overblown wages when it could cut costs by relocating operations to Mexico for cheaper labor. For a CEO to waste his shareholders' money like that, by denying them a cost-saving alternative, is to play God with their property, when his responsibility is to maximize their profit.
If individual shareholders wish to donate money to nonprofits that help laid-off workers or supplement Third-World employees' low income, no one will stop them.
The bottom line: Corporate "social responsibility" is irresponsible. Let's just let corporations make money, responsibly benefiting us all.
Stuart K. Hayashi graduated from Hawaii Pacific University as an Entrepreneurial Studies major in May 2003, and he is the former president of the Reason Club of Honolulu, though his opinions do not necessarily reflect that of either organization. He is the founder of a news Web log, "The Fiftieth Star," at: http://50thstar.blogspot.com to be unofficially centered around activities at the University of Hawaii at Manoa, and he can be reached at: mailto:radical_individualist@hotmail.com
Recommended Links:
"The Social Responsibility of Business Is to Increase Profits" by Milton Friedman, Nobel laureate
http://mwp01.mwp.hawaii.edu/pe_q-business.htm
Hayashi's note: This is the most famous argument against the leftists' "corporate social responsibility" dogma. I consider my position more radical than Friedman's, and I disagree with both his definition of "taxation" and his implicit concession that the government should be involved in regulating the economy.
"Corporate 'Social Responsibility' Is Irresponsible" by Yaron Brook, Ph.D.
http://business.aynrand.org/social_responsibility.html
Hayashi's note: I believe this argument is better than Friedman's.
"Holding Up the Shareholder" by T. J. Rodgers, Ph.D., CEO of Cypress Semiconductor Corp.
http://www.cypress.com/aboutus/press_release.cfm?objectid=C48E49D5-8283-4DAC-954D0D9306600664&pr_type=ceo
"Cypress [Semiconductor] CEO Responds to Nun's Urging a 'Politically Correct' Board Make-Up" by T. J. Rodgers, Ph.D.
http://www.cypress.com/aboutus/press_release.cfm?objectid=246F3C3A-388F-4645-A39A6FB9AD3FD3B4&pr_type=ceo
"The Meaning of Jack Welch's Cave-In" by Edwin A. Locke, Ph.D.
http://capmag.com/article.asp?ID=1870
"An Open Letter to CEOs: Defend the Profit Motive -- or Perish" by Alex Epstein
http://microsoft.aynrand.org/defendprofit.html
See second part at: "Corporate 'Social Responsibility' and Economies of Scale - Part 2"
