The Social Value of Business.

• Author: Costello, Kenneth W.

What are the purposes of private firms, and what are their roles in society? Those questions relate to a current, trendy topic: corporate social responsibility (CSR), also known as "stakeholder capitalism."

The latter term is redundant. In free markets, successful companies must accommodate the interests of those who have some stake in them: customers, investors, and employees. That, in fact, is one of capitalism's most admirable aspects, which many politicians, nongovernmental organizations, and the general public seem to overlook.

The principle that companies achieve social welfare objectives when they pursue profit-maximizing objectives has been recognized for two-and-a-half centuries. Adam Smith connected the two by way of his invisible hand: "It is not from the benevolence of the butcher, the brewer, or the baker that we can expect our dinner, but from their regard to their self-interest." That insight is now under attack from different quarters.

Various interests are pressuring firm managers to pay more attention to the so-called "social consequences" of firm actions. They allege that companies' decisions should address social problems like below-poverty-line wages, exploitation of consumers, the condition of local communities, excessive profits, unfounded compensation for CEOs, damaging pollution and other negative externalities, and lack of diversity and inclusion in the workplace. Over the past several years, the idea has gained traction that companies have responsibilities to the broader society beyond their duties to shareholders.

In reading the Wall Street Journal and other publications over the past several months, one readily sees how investors and consumers in particular are pressuring firms to lighten their carbon footprints. Some companies have committed to spending hundreds of millions, and even billions, of dollars to address climate change. One company, Amazon, expects to spend $ 10 billion on an initiative called the Bezos Earth Fund.

Why be responsible? / As a critical milestone, in 2019 the Business Roundtable (an association of chief executives of the country's largest companies) took a dramatic left turn by supporting the view that companies primarily should serve myriad stakeholders rather than just their shareholders. Subsequently, the CEOs and other managers of a growing number of companies have announced plans to spend shareholders' money to address broader social problems, thereby demoting shareholder interests...