The Attack of the Capitalist Fundamentalists

In case you missed it, Fortune’s annual list of most admired companies appeared in the March 19th issue. The list is compiled from the results of a survey of the Fortune 1,000 conducted by the Hay Group. Hay survey asked executives, directors and analysts to rate companies in their industries on eight criteria, from investment value to social responsibility.

Not surprising (at least to us) FoEs took five of the top 10 slots, starting with Starbucks who came in second after GE. Interestingly (again, at least to us) GE appears to be moving toward FoE status. We also have seen signs of FoE-ness emerging at Proctor & Gamble, which place in the 10^th spot of most respected companies.

Thus with two near-FoEs and five confirmed FoEs, it seems that FoE-ness is catching on in a big way.

Despite this, those whom we have dubbed “capitalist fundamentalists” are still alive and well, often fighting with mean spiritedness against any notion that proactive social responsibility has a place in corporate purpose.

One such is the Free Enterprise Action Fund. It looks upon companies that have bought into the corporate social responsibility movement with contempt. But rather than attack the executive leadership of those companies, FEAC goes after faceless “left wing activists” who would turn capitalism against itself. From FEAC’s home page:

Why invest in the Free Enterprise Action Fund? Left-wing social and political activists are harnessing the power, resources and influence of publicly-owned corporations to advance their social and political agendas. (1) Frustrated by their failure to advance their agendas in the public political process, these activists use capitalism against capitalism under the guise of “corporate social responsibility” and “socially responsible investing.” (2) Their movement threatens shareholder value and the American system of free enterprise.

Leveraging its status as an institutional shareholder in hundreds of America’s largest companies, the Fund aims to defend free enterprise from the Left’s use of capitalism against capitalism.

Our Core Principle. “The social responsibility of a business is to increase its profits.” [Milton Friedman Winner of the 1976 Nobel Prize in Economics]

Interestingly, FEAC doesn’t eschew companies that proudly maintain a social agenda. Five of their investments are cited in our book as FoEs. How pure are these chaps, anyway? One of their larger investments is Johnson & Johnson (an FoE) whose widely applauded Credo – drafted long before corporate activists were anyone's worry – lists shareholders last in its enumerated list of beliefs and dedicated efforts.

These guys ought to fund the development of a time machine and take a one-way trip to the 19th century. They are wildly out of touch with business realities in the 21st century.

Take a look at the Johnson & Johnson Credo:

Our Credo

We believe our first responsibility is to the doctors, nurses and patients,
to mothers and fathers and all others who use our products and services.
In meeting their needs everything we do must be of high quality.
We must constantly strive to reduce our costs
in order to maintain reasonable prices.
Customers' orders must be serviced promptly and accurately.
Our suppliers and distributors must have an opportunity
to make a fair profit.
We are responsible to our employees,
the men and women who work with us throughout the world.
Everyone must be considered as an individual.
We must respect their dignity and recognize their merit.
They must have a sense of security in their jobs.
Compensation must be fair and adequate,
and working conditions clean, orderly and safe.
We must be mindful of ways to help our employees fulfill
their family responsibilities.
Employees must feel free to make suggestions and complaints.
There must be equal opportunity for employment, development
and advancement for those qualified.
We must provide competent management,
and their actions must be just and ethical.

We are responsible to the communities in which we live and work
and to the world community as well.
We must be good citizens – support good works and charities
and bear our fair share of taxes.
We must encourage civic improvements and better health and education.
We must maintain in good order
the property we are privileged to use,
protecting the environment and natural resources.

Our final responsibility is to our stockholders.
Business must make a sound profit.
We must experiment with new ideas.
Research must be carried on, innovative programs developed
and mistakes paid for.
New equipment must be purchased, new facilities provided
and new products launched.
Reserves must be created to provide for adverse times.
When we operate according to these principles,
the stockholders should realize a fair return.

If these guys were authentic, they would dump J&J immediately, for its Credo runs solidly against the Friedman dictum that the only social responsibility of a company is to create profits for its owners. The J&J Credo was drafted 60 years ago, about 25 years before Friedman made his celebrated remarks about the only social responsibility of companies.

DBW

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