[Paleopsych] Reason: Rethinking the Social Responsibility of Business
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Sun Oct 30 01:06:42 UTC 2005
Rethinking the Social Responsibility of Business
A Reason debate featuring Milton Friedman, Whole Foods John Mackey,
and Cypress Semiconductors T.J. Rodgers
Thirty-five years ago, Milton Friedman wrote a famous article for The
New York Times Magazine whose title aptly summed up its main point:
The Social Responsibility of Business Is to Increase Its Profits. The
future Nobel laureate in economics had no patience for capitalists who
claimed that business is not concerned merely with profit but also
with promoting desirable social ends; that business has a social
conscience and takes seriously its responsibilities for providing em-
ployment, eliminating discrimination, avoiding pollution and whatever
else may be the catchwords of the contemporary crop of reformers.
Friedman, now a senior research fellow at the Hoover Institution and
the Paul Snowden Russell Distinguished Service Professor Emeritus of
Economics at the University of Chicago, wrote that such people are
preaching pure and unadulterated socialism. Businessmen who talk this
way are unwitting puppets of the intellectual forces that have been
undermining the basis of a free society these past decades.
John Mackey, the founder and CEO of Whole Foods, is one businessman
who disagrees with Friedman. A self-described ardent libertarian whose
conversation is peppered with references to Ludwig von Mises and
Abraham Maslow, Austrian economics and astrology, Mackey believes
Friedmans view is too narrow a description of his and many other
businesses activities. As important, he argues that Friedmans take
woefully undersells the humanitarian dimension of capitalism.
In the debate that follows, Mackey lays out his personal vision of the
social responsibility of business. Friedman responds, as does T.J.
Rodgers, the founder and CEO of Cypress Semiconductor and the chief
spokesman of what might be called the tough love school of laissez
faire. Dubbed one of Americas toughest bosses by Fortune, Rodgers
argues that corporations add far more to society by maximizing
long-term shareholder value than they do by donating time and money to
Reason offers this exchange as the starting point of a discussion that
should be intensely important to all devotees of free minds and free
markets. Comments should be sent to letters at reason.com.
Putting Customers Ahead of Investors
In 1970 Milton Friedman wrote that there is one and only one social
responsibility of businessto use its resources and engage in
activities designed to increase its profits so long as it stays within
the rules of the game, which is to say, engages in open and free
competition without deception or fraud. Thats the orthodox view among
free market economists: that the only social responsibility a
law-abiding business has is to maximize profits for the shareholders.
I strongly disagree. Im a businessman and a free market libertarian,
but I believe that the enlightened corporation should try to create
value for all of its constituencies. From an investors perspective,
the purpose of the business is to maximize profits. But thats not the
purpose for other stakeholdersfor customers, employees, suppliers, and
the community. Each of those groups will define the purpose of the
business in terms of its own needs and desires, and each perspective
is valid and legitimate.
My argument should not be mistaken for a hostility to profit. I
believe I know something about creating shareholder value. When I
co-founded Whole Foods Market 27 years ago, we began with $45,000 in
capital; we only had $250,000 in sales our first year. During the last
12 months we had sales of more than $4.6 billion, net profits of more
than $160 million, and a market capitalization over $8 billion.
But we have not achieved our tremendous increase in shareholder value
by making shareholder value the primary purpose of our business. In my
marriage, my wifes happiness is an end in itself, not merely a means
to my own happiness; love leads me to put my wifes happiness first,
but in doing so I also make myself happier. Similarly, the most
successful businesses put the customer first, ahead of the investors.
In the profit-centered business, customer happiness is merely a means
to an end: maximizing profits. In the customer-centered business,
customer happiness is an end in itself, and will be pursued with
greater interest, passion, and empathy than the profit-centered
business is capable of.
Not that were only concerned with customers. At Whole Foods, we
measure our success by how much value we can create for all six of our
most important stakeholders: customers, team members (employees),
investors, vendors, communities, and the environment. Our philosophy
is graphically represented in the opposite column.
There is, of course, no magical formula to calculate how much value
each stakeholder should receive from the company. It is a dynamic
process that evolves with the competitive marketplace. No stakeholder
remains satisfied for long. It is the function of company leadership
to develop solutions that continually work for the common good.
Many thinking people will readily accept my arguments that caring
about customers and employees is good business. But they might draw
the line at believing a company has any responsibility to its
community and environment. To donate time and capital to philanthropy,
they will argue, is to steal from the investors. After all, the
corporations assets legally belong to the investors, dont they?
Management has a fiduciary responsibility to maximize shareholder
value; therefore, any activities that dont maximize shareholder value
are violations of this duty. If you feel altruism towards other
people, you should exercise that altruism with your own money, not
with the assets of a corporation that doesnt belong to you.
This position sounds reasonable. A companys assets do belong to the
investors, and its management does have a duty to manage those assets
responsibly. In my view, the argument is not wrong so much as it is
First, there can be little doubt that a certain amount of corporate
philanthropy is simply good business and works for the long-term
benefit of the investors. For example: In addition to the many
thousands of small donations each Whole Foods store makes each year,
we also hold five 5% Days throughout the year. On those days, we
donate 5 percent of a stores total sales to a nonprofit organization.
While our stores select worthwhile organizations to support, they also
tend to focus on groups that have large membership lists, which are
contacted and encouraged to shop our store that day to support the
organization. This usually brings hundreds of new or lapsed customers
into our stores, many of whom then become regular shoppers. So a 5%
Day not only allows us to support worthwhile causes, but is an
excellent marketing strategy that has benefited Whole Foods investors
That said, I believe such programs would be completely justifiable
even if they produced no profits and no P.R. This is because I believe
the entrepreneurs, not the current investors in a companys stock, have
the right and responsibility to define the purpose of the company. It
is the entrepreneurs who create a company, who bring all the factors
of production together and coordinate it into viable business. It is
the entrepreneurs who set the company strategy and who negotiate the
terms of trade with all of the voluntarily cooperating
stakeholdersincluding the investors. At Whole Foods we hired our
original investors. They didnt hire us.
We first announced that we would donate 5 percent of the companys net
profits to philanthropy when we drafted our mission statement, back in
1985. Our policy has therefore been in place for over 20 years, and it
predates our IPO by seven years. All seven of the private investors at
the time we created the policy voted for it when they served on our
board of directors. When we took in venture capital money back in
1989, none of the venture firms objected to the policy. In addition,
in almost 14 years as a publicly traded company, almost no investors
have ever raised objections to the policy. How can Whole Foods
philanthropy be theft from the current investors if the original
owners of the company unanimously approved the policy and all
subsequent investors made their investments after the policy was in
effect and well publicized?
The shareholders of a public company own their stock voluntarily. If
they dont agree with the philosophy of the business, they can always
sell their investment, just as the customers and employees can exit
their relationships with the company if they dont like the terms of
trade. If that is unacceptable to them, they always have the legal
right to submit a resolution at our annual shareholders meeting to
change the companys philanthropic philosophy. A number of our company
policies have been changed over the years through successful
Another objection to the Whole Foods philosophy is where to draw the
line. If donating 5 percent of profits is good, wouldnt 10 percent be
even better? Why not donate 100 percent of our profits to the
betterment of society? But the fact that Whole Foods has
responsibilities to our community doesnt mean that we dont have any
responsibilities to our investors. Its a question of finding the
appropriate balance and trying to create value for all of our
stakeholders. Is 5 percent the right amount to donate to the
community? I dont think there is a right answer to this question,
except that I believe 0 percent is too little. It is an arbitrary
percentage that the co-founders of the company decided was a
reasonable amount and which was approved by the owners of the company
at the time we made the decision. Corporate philanthropy is a good
thing, but it requires the legitimacy of investor approval. In my
experience, most investors understand that it can be beneficial to
both the corporation and to the larger society.
That doesnt answer the question of why we give money to the community
stakeholder. For that, you should turn to one of the fathers of
free-market economics, Adam Smith. The Wealth of Nations was a
tremendous achievement, but economists would be well served to read
Smiths other great book, The Theory of Moral Sentiments. There he
explains that human nature isnt just about self-interest. It also
includes sympathy, empathy, friendship, love, and the desire for
social approval. As motives for human behavior, these are at least as
important as self-interest. For many people, they are more important.
When we are small children we are egocentric, concerned only about our
own needs and desires. As we mature, most people grow beyond this
egocentrism and begin to care about otherstheir families, friends,
communities, and countries. Our capacity to love can expand even
further: to loving people from different races, religions, and
countriespotentially to unlimited love for all people and even for
other sentient creatures. This is our potential as human beings, to
take joy in the flourishing of people everywhere. Whole Foods gives
money to our communities because we care about them and feel a
responsibility to help them flourish as well as possible.
The business model that Whole Foods has embraced could represent a new
form of capitalism, one that more consciously works for the common
good instead of depending solely on the invisible hand to generate
positive results for society. The brand of capitalism is in terrible
shape throughout the world, and corporations are widely seen as
selfish, greedy, and uncaring.This is both unfortunate and
unnecessary, and could be changed if businesses and economists widely
adopted the business model that I have outlined here.
To extend our love and care beyond our narrow self-interest is
antithetical to neither our human nature nor our financial success.
Rather, it leads to the further fulfillment of both. Why do we not
encourage this in our theories of business and economics? Why do we
restrict our theories to such a pessimistic and crabby view of human
nature? What are we afraid of?
Making Philanthropy Out of Obscenity
By pursuing his own interest [an individual] frequently promotes that
of the society more effectually than when he really intends to promote
it. I have never known much good done by those who affected to trade
for the public good.
Adam Smith, The Wealth of Nations
The differences between John Mackey and me regarding the social
responsibility of business are for the most part rhetorical. Strip off
the camouflage, and it turns out we are in essential agreement.
Moreover, his company, Whole Foods Market, behaves in accordance with
the principles I spelled out in my 1970 New York Times Magazine
With respect to his company, it could hardly be otherwise. It has done
well in a highly competitive industry. Had it devoted any significant
fraction of its resources to exercising a social responsibility
unrelated to the bottom line, it would be out of business by now or
would have been taken over.
Here is how Mackey himself describes his firms activities:
1) The most successful businesses put the customer first, instead of
the investors (which clearly means that this is the way to put the
2) There can be little doubt that a certain amount of corporate
philanthropy is simply good business and works for the long-term
benefit of the investors.
Compare this to what I wrote in 1970:
Of course, in practice the doctrine of social responsibility is
frequently a cloak for actions that are justified on other grounds
rather than a reason for those actions.
To illustrate, it may well be in the long run interest of a
corporation that is a major employer in a small community to devote
resources to providing amenities to that community or to improving its
In each of thesecases, there is a strong temptation to rationalize
these actions as an exercise of social responsibility. In the present
climate of opinion, with its widespread aversion to capitalism,
profits, the soulless corporation and so on, this is one way for a
corporation to generate goodwill as a by-product of expenditures that
are entirely justified in its own self-interest.
It would be inconsistent of me to call on corporate executives to
refrain from this hypocritical window-dressing because it harms the
foundations of a free society. That would be to call on them to
exercise a social responsibility! If our institutions and the
attitudes of the public make it in their self-interest to cloak their
actions in this way, I cannot summon much indignation to denounce
I believe Mackeys flat statement that corporate philanthropy is a good
thing is flatly wrong. Consider the decision by the founders of Whole
Foods to donate 5 percent of net profits to philanthropy. They were
clearly within their rights in doing so. They were spending their own
money, using 5 percent of one part of their wealth to establish,
thanks to corporate tax provisions, the equivalent of a 501c(3)
charitable foundation, though with no mission statement, no separate
by-laws, and no provision for deciding on the beneficiaries. But what
reason is there to suppose that the stream of profit distributed in
this way would do more good for society than investing that stream of
profit in the enterprise itself or paying it out as dividends and
letting the stockholders dispose of it? The practice makes sense only
because of our obscene tax laws, whereby a stockholder can make a
larger gift for a given after-tax cost if the corporation makes the
gift on his behalf than if he makes the gift directly. That is a good
reason for eliminating the corporate tax or for eliminating the
deductibility of corporate charity, but it is not a justification for
Whole Foods Markets contribution to societyand as a customer I can
testify that it is an important oneis to enhance the pleasure of
shopping for food. Whole Foods has no special competence in deciding
how charity should be distributed. Any funds devoted to the latter
would surely have contributed more to society if they had been devoted
to improving still further the former.
Finally, I shall try to explain why my statement that the social
responsibility of business [is] to increase its profits and Mackeys
statement that the enlightened corporation should try to create value
for all of its constituencies are equivalent.
Note first that I refer to social responsibility, not financial, or
accounting, or legal. It is social precisely to allow for the
constituencies to which Mackey refers. Maximizing profits is an end
from the private point of view; it is a means from the social point of
view. A system based on private property and free markets is a
sophisticated means of enabling people to cooperate in their economic
activities without compulsion; it enables separated knowledge to
assure that each resource is used for its most valued use, and is
combined with other resources in the most efficient way.
Of course, this is abstract and idealized. The world is not ideal.
There are all sorts of deviations from the perfect marketmany, if not
most, I suspect, due to government interventions. But with all its
defects, the current largely free-market, private-property world seems
to me vastly preferable to a world in which a large fraction of
resources is used and distributed by 501c(3)s and their corporate
Put Profits First
John Mackeys article attacking corporate profit maximization could not
have been written by a free market libertarian, as claimed. Indeed, if
the examples he cites had not identified him as the author, one could
easily assume the piece was written by Ralph Nader. A more accurate
title for his article is How Business and Profit Making Fit Into My
Overarching Philosophy of Altruism.
Mackey spouts nonsense about how his company hired his original
investors, not vice versa. If Whole Foods ever falls on persistent
hard timesperhaps when the Luddites are no longer able to hold back
the genetic food revolution using junk science and fearhe will quickly
find out who has hired whom, as his investors fire him.
Mackey does make one point that is consistent with, but not supportive
of, free market capitalism. He knows that shareholders own his stock
voluntarily. If they dont like the policies of his company, they can
always vote to change those policies with a shareholder resolution or
simply sell the stock and buy that of another company more aligned
with their objectives. Thus, he informs his shareholders of his
objectives and lets them make a choice on which stock to buy. So far,
It is also simply good business for a company to cater to its
customers, train and retain its employees, build long-term positive
relationships with its suppliers, and become a good citizen in its
community, including performing some philanthropic activity. When
Milton Friedman says a company should stay within the rules of the
game and operate without deception or fraud, he means it should deal
with all its various constituencies properly in order to maximize
long-term shareholder value. He does not mean that a company should
put every last nickel on the bottom line every quarter, regardless of
the long-term consequences.
My company, Cypress Semiconductor, has won the trophy for the Second
Harvest Food Bank competition for the most food donated per employee
in Silicon Valley for the last 13 consecutive years (1 million pounds
of food in 2004). The contest creates competition among our divisions,
leading to employee involvement, company food drives, internal social
events with admissions paid for by food donations, and so forth. It is
a big employee morale builder, a way to attract new employees, good
P.R. for the company, and a significant benefit to the communityall of
which makes Cypress a better place to work and invest in. Indeed,
Mackeys own proud example of Whole Foods community involvement
programs also made a profit.
But Mackeys subordination of his profession as a businessman to
altruistic ideals shows up as he attempts to negate the empirically
demonstrated social benefit of self-interest by defining it narrowly
as increasing short-term profits. Why is it that when Whole Foods
gives money to a worthy cause, it serves a high moral objective, while
a company that provides a good return to small investorswho simply put
their money into their own retirement funds or a childrens college
fundis somehow selfish? Its the philosophy that is objectionable here,
not the specific actions. If Mackey wants to run a hybrid
business/charity whose mission is fully disclosed to his
shareholdersand if those shareholder-owners want to support that
missionso be it. But I balk at the proposition that a companys
stakeholders (a term often used by collectivists to justify
unreasonable demands) should be allowed to control the property of the
shareholders. It seems Mackeys philosophy is more accurately described
by Karl Marx: From each according to his ability (the shareholders
surrender money and assets); to each according to his needs (the
charities, social interest groups, and environmentalists get what they
want). Thats not free market capitalism.
Then there is the arrogant proposition that if other corporations
would simply emulate the higher corporate life form defined by Whole
Foods, the world would be better off. After all, Mackey says
corporations are viewed as selfish, greedy, and uncaring. I, for one,
consider free market capitalism to be a high calling, even without the
infusion of altruism practiced by Whole Foods.
If one goes beyond the sensationalistic journalism surrounding the
Enron-like debacles, one discovers that only about 10 to 20 public
corporations have been justifiably accused of serious wrongdoing.
Thats about 0.1 percent of Americas 17,500 public companies. Whats the
failure rate of the publications that demean business? (Consider the
New York Times scandal involving manufactured stories.) Whats the
percentage of U.S. presidents who have been forced or almost forced
from office? (Its 10 times higher than the failure rate of
corporations.) What percentage of our congressmen have spent time in
jail? The fact is that despite some well-publicized failures, most
corporations are run with the highest ethical standardsand the public
knows it. Public opinion polls demonstrate that fact by routinely
ranking businessmen above journalists and politicians in esteem.
I am proud of what the semiconductor industry doesrelentlessly cutting
the cost of a transistor from $3 in 1960 to three-millionths of a
dollar today. Mackey would be keeping his business records with hordes
of accountants on paper ledgers if our industry didnt exist. He would
have to charge his poorest customers more for their food, pay his
valued employees less, and cut his philanthropy programs if the
semiconductor industry had not focused so relentlessly on increasing
its profits, cutting his costs in the process. Of course, if the U.S.
semiconductor industry had been less cost-competitive due to its own
philanthropy, the food industry simply would have bought cheaper
computers made from Japanese and Korean silicon chips (which happened
anyway). Layoffs in the nonunion semiconductor industry were actually
good news to Whole Foods unionized grocery store clerks. Where was
Mackeys sense of altruism when unemployed semiconductor workers needed
it? Of course, that rhetorical question is foolish, since he did
exactly the right thing by ruthlessly reducing his recordkeeping costs
so as to maximize his profits.
I am proud to be a free market capitalist. And I resent the fact that
Mackeys philosophy demeans me as an egocentric child because I have
refused on moral grounds to embrace the philosophies of collectivism
and altruism that have caused so much human misery, however tempting
the sales pitch for them sounds.
Profit Is the Means, Not End
Let me begin my response to Milton Friedman by noting that he is one
of my personal heroes. His contributions to economic thought and the
fight for freedom are without parallel, and it is an honor to have him
critique my article.
Friedman says the differences between John Mackey and me regarding the
social responsibility of business are for the most part rhetorical.
But are we essentially in agreement? I dont think so. We are thinking
about business in entirely different ways.
Friedman is thinking only in terms of maximizing profits for the
investors. If putting customers first helps maximize profits for the
investors, then it is acceptable. If some corporate philanthropy
creates goodwill and helps a company cloak its self-interested goals
of maximizing profits, then it is acceptable (although Friedman also
believes it is hypocritical). In contrast to Friedman, I do not
believe maximizing profits for the investors is the only acceptable
justification for all corporate actions. The investors are not the
only people who matter. Corporations can exist for purposes other than
simply maximizing profits.
As for who decides what the purpose of any particular business is, I
made an important argument that Friedman doesnt address: I believe the
entrepreneurs, not the current investors in a companys stock, have the
right and responsibility to define the purpose of the company. Whole
Foods Market was not created solely to maximize profits for its
investors, but to create value for all of its stakeholders. I believe
there are thousands of other businesses similar to Whole Foods
(Medtronic, REI, and Starbucks, for example) that were created by
entrepreneurs with goals beyond maximizing profits, and that these
goals are neither hypocritical nor cloaking devices but are intrinsic
to the purpose of the business.
I will concede that many other businesses, such as T.J. Rodgers
Cypress Semiconductor, have been created by entrepreneurs whose sole
purpose for the business is to maximize profits for their investors.
Does Cypress therefore have any social responsibility besides
maximizing profits if it follows the laws of society? No, it doesnt.
Rodgers apparently created it solely to maximize profits, and
therefore all of Friedmans arguments about business social
responsibility become completely valid. Business social responsibility
should not be coerced; it is a voluntary decision that the
entrepreneurial leadership of every company must make on its own.
Friedman is right to argue that profit making is intrinsically
valuable for society, but I believe he is mistaken that all businesses
have only this purpose.
While Friedman believes that taking care of customers, employees, and
business philanthropy are means to the end of increasing investor
profits, I take the exact opposite view: Making high profits is the
means to the end of fulfilling Whole Foods core business mission. We
want to improve the health and well-being of everyone on the planet
through higher-quality foods and better nutrition, and we cant fulfill
this mission unless we are highly profitable. High profits are
necessary to fuel our growth across the United States and the world.
Just as people cannot live without eating, so a business cannot live
without profits. But most people dont live to eat, and neither must a
businesses live just to make profits.
Toward the end of his critique Friedman says his statement that the
social responsibility of business [is] to increase its profits and my
statement that the enlightened corporation should try to create value
for all of its constituencies are equivalent. He argues that
maximizing profits is a private end achieved through social means
because it supports a society based on private property and free
markets. If our two statements are equivalent, if we really mean the
same thing, then I know which statement has the superior marketing
power. Mine does.
Both capitalism and corporations are misunderstood, mistrusted, and
disliked around the world because of statements like Friedmans on
social responsibility. His comment is used by the enemies of
capitalism to argue that capitalism is greedy, selfish, and uncaring.
It is right up there with William Vanderbilts the public be damned and
former G.M. Chairman Charlie Wilsons declaration that whats good for
the country is good for General Motors, and vice versa. If we are
truly interested in spreading capitalism throughout the world (I
certainly am), we need to do a better job marketing it. I believe if
economists and business people consistently communicated and acted on
my message that the enlightened corporation should try to create value
for all of its constituencies, we would see most of the resistance to
Friedman also understands that Whole Foods makes an important
contribution to society besides simply maximizing profits for our
investors, which is to enhance the pleasure of shopping for food. This
is why we put satisfying and delighting our customers as a core value
whenever we talk about the purpose of our business. Why dont Friedman
and other economists consistently teach this idea? Why dont they talk
more about all the valuable contributions that business makes in
creating value for its customers, for its employees, and for its
communities? Why talk only about maximizing profits for the investors?
Doing so harms the brand of capitalism.
As for Whole Foods philanthropy, who does have special competence in
this area? Does the government? Do individuals? Libertarians generally
would agree that most bureaucratic government solutions to social
problems cause more harm than good and that government help is seldom
the answer. Neither do individuals have any special competence in
charity. By Friedmans logic, individuals shouldnt donate any money to
help others but should instead keep all their money invested in
businesses, where it will create more social value.
The truth is that there is no way to calculate whether money invested
in business or money invested in helping to solve social problems will
create more value. Businesses exist within real communities and have
real effects, both good and bad, on those communities. Like
individuals living in communities, businesses make valuable social
contributions by providing goods and services and employment. But just
as individuals can feel a responsibility to provide some philanthropic
support for the communities in which they live, so too can a business.
The responsibility of business toward the community is not infinite,
but neither is it zero. Each enlightened business must find the proper
balance between all of its constituencies: customers, employees,
investors, suppliers, and communities.
While I respect Milton Friedmans thoughtful response, I do not feel
the same way about T.J. Rodgers critique. It is obvious to me that
Rodgers didnt carefully read my article, think deeply about my
arguments, or attempt to craft an intelligent response. Instead he
launches various ad hominem attacks on me, my company, and our
customers. According to Rodgers, my business philosophy is similar to
those of Ralph Nader and Karl Marx; Whole Foods Market and our
customers are a bunch of Luddites engaging in junk science and fear
mongering; and our unionized grocery clerks dont care about layoffs of
workers in Rodgers own semiconductor industry.
For the record: I dont agree with the philosophies of Ralph Nader or
Karl Marx; Whole Foods Market doesnt engage in junk science or fear
mongering, and neither do 99 percent of our customers or vendors; and
of Whole Foods 36,000 employees, exactly zero of them belong to
unions, and we are in fact sorry about layoffs in his industry.
When Rodgers isnt engaging in ad hominem attacks, he seems to be
arguing against a leftist, socialist, and collectivist perspective
that may exist in his own mind but does not appear in my article.
Contrary to Rodgers claim, Whole Foods is running not a hybrid
business/charity but an enormously profitable business that has
created tremendous shareholder value.
Of all the food retailers in the Fortune 500 (including Wal-Mart), we
have the highest profits as a percentage of sales, as well as the
highest return on invested capital, sales per square foot, same-store
sales, and growth rate. We are currently doubling in size every three
and a half years. The bottom line is that Whole Foods stakeholder
business philosophy works and has produced tremendous value for all of
our stakeholders, including our investors.
In contrast, Cypress Semiconductor has struggled to be profitable for
many years now, and their balance sheet shows negative retained
earnings of over $408 million. This means that in its entire 23-year
history, Cypress has lost far more money for its investors than it has
made. Instead of calling my business philosophy Marxist, perhaps it is
time for Rodgers to rethink his own.
Rodgers says with passion, I am proud of what the semiconductor
industry doesrelentlessly cutting the cost of a transistor from $3 in
1960 to three-millionths of a dollar today. Rodgers is entitled to be
proud. What a wonderful accomplishment this is, and the semiconductor
industry has indeed made all our lives better. Then why not
consistently communicate this message as the purpose of his business,
instead of talking all the time about maximizing profits and
shareholder value? Like medicine, law, and education, business has
noble purposes: to provide goods and services that improve its
customers lives, to provide jobs and meaningful work for employees, to
create wealth and prosperity for its investors, and to be a
responsible and caring citizen.
Businesses such as Whole Foods have multiple stakeholders and
therefore have multiple responsibilities. But the fact that we have
responsibilities to stakeholders besides investors does not give those
other stakeholders any property rights in the company, contrary to
Rodgers fears. The investors still own the business, are entitled to
the residual profits, and can fire the management if they wish. A
doctor has an ethical responsibility to try to heal her patients, but
that responsibility doesnt mean her patients are entitled to receive a
share of the profits from her practice.
Rodgers probably will never agree with my business philosophy, but it
doesnt really matter. The ideas Im articulating result in a more
robust business model than the profit-maximization model that it
competes against, because they encourage and tap into more powerful
motivations than self-interest alone. These ideas will triumph over
time, not by persuading intellectuals and economists through argument
but by winning the competitive test of the marketplace. Someday
businesses like Whole Foods, which adhere to a stakeholder model of
deeper business purpose, will dominate the economic landscape. Wait
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