Tuesday, July 19, 2011

Corporate Social Responsibility: Whole Foods vs. Cypress Semiconducter

My colleague Mark Cohen pointed me to an interesting debate on Corporate Social Responsibility in REASON Magazine ("Free minds and Free Markets") between three libertarians: Whole Foods CEO John Mackay, Milton Friedman, and Cypress Seminconductor's TJ Rogers, who makes an appearance in John Stossel's intriguing "Greed" video.

Professor Friedman's classic argument is that since shareholders can contribute to charity if they want, the corporation should return as much money as possible to shareholders to let them pursue their own goals. Indeed, Mr. Rogers' employees can afford to be altruistic, partly because they have jobs at Cypress:

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).

Mr. Rodgers goes on to criticize Whole Foods for donating 5% of its profit to charity by arguuing that corporations add far more to society by maximizing "long-term shareholder value" than they do by donating time and money to charity. Mr. Mackay responds by turning the usual principal-agent relationship between shareholders and managers on its head:

I believe the entrepreneurs, not the current investors in a company's stock, have the right and responsibility to define the purpose of the company. ... At Whole Foods we "hired" our original investors. They didn't hire us. .... We first announced that we would donate 5 percent of the company's net profits to philanthropy when we drafted our mission statement, back in 1985.

The most interesting, and paradoxical, argument comes from Mr. Mackay who says that one cannot maximize profit by trying to maximize profit:

...we have not achieved our tremendous increase in shareholder value by making shareholder value the primary purpose of our business. ... 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.


  1. Mr Mackay has latched onto the idea of obliquity*, which is a good one. Pursuit of profit as a primary driver often leads to companies robbing the future to prop up the present.

  2. I think Mackay's point is *almost* behavioral. When I heard about the 5% policy, I thought "Genius! WF is using charity to select its customers." That is, those who care about charity may be more willing to pay for organic and fair trade goods, on the margin.