Why Do Corporations Decide to Do Good?

In his highly influential essay, Milton Friedman argued that companies should never engage in “social responsibility,” defined as going beyond regulatory compliance and normal business practices to advance a “social” goal. In contrast, I argue for a more nuanced approach when considering in engaging in these activities. Specifically, I assert that companies should not engage in such activities for “moral” or “ethical” reasons or in response to societal pressure alone, but rather in response to a legitimate demand for ‘social’ practices from groups (e.g. consumers) that can directly benefit the firm. This profit-maximizing approach to ‘social responsibility’ still allows for considerable scope in formulating and implementing strategic initiatives that simultaneously advance corporate and societal goals. Under certain conditions, managers can maximize profit, while also adopting practices that are perceived to be socially responsible.