Why firms should not always maximise profits

This article examines the dilemmas that face corporate executives when it comes to weighing up corporate social responsibility (CSR) and profit maximisation. Through the eyes of specialists such as Friedman, it establishes whether any of the viewpoints on this subject can stand up to close scrutiny and whether a compromise between the two is possible.

Though CSR is on the agenda of most major corporations, corporate executives still largely support the view that corporations should maximise the returns to their owners. There are two lines of defence for this position. One is the Friedmanian view that maximising owner returns is the corporate social responsibility of corporations. The other is a position voiced by many executives, that CSR and profits go together. This paper argues that the first position is ethically untenable, while the latter is not supported by empirical evidence. The implication is that there may be good reason for firms to deviate from a maxim of profit maximisation.

Key concluding points include that:

• CSR does not generally increase profitability. When corporate executives only implement acts of corporate responsibility that promote profits, and only as much of these activities as promotes profits, they are just being profit-minded, not responsible
• there is thus a very real possibility that corporations should in certain cases deviate from profit maximisation, from maximising returns to owners, to pursue ends that are more important from a social point of view
• this does not mean that corporations should abandon profit maximisation altogether, in certain cases the efficiency enhancing effects of this pursuit will make them legitimate, but in other cases other interests will take precedence
• defining exactly what is the responsibility of corporations, is a question that would benefit from further research.