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The role of profits

“We have to go back to recognizing that companies and capitalism have a purpose much more than just capturing value. They are out there to do more than just making profit. Ironically, even if that was your objective, which was just to make as much money as possible, the way to do it is to focus on what will create durable cultures. That’s the only long term competitive advantage,” Tony Tjan of venture capital firm Cue Ball Group tells LinkedIn founder Reid Hoffman in the current episode of Masters of Scale.

CrossFit founder and CEO Greg Glassman explains a similar lesson he learned: “Wait a minute. I’m not trying to make money. Money’s what happens when you do something right.”

But didn’t Milton Friedman say, “there is one and only one social responsibility of business–to use it 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?”

How can investors and founders say profit isn’t the point and Friedman say they are? The key is in Gassman’s phrase, “Money’s what happens when you do something right.” He began asking whether business decisions would improve the client’s experience. Excellence is the goal and it is observable by clients and people in the organization. Money is just an easy yardstick to keep score. And Friedman himself squared the circle in 1970 this way

In a free-enterprise, private-property sys tem, a corporate executive is an employee of the owners of the business. He has direct re sponsibility to his employers. That responsi bility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. Of course, in some cases his employers may have a different objective. A group of persons might establish a corporation for an eleemosynary purpose–for example, a hospital or a school. The manager of such a corporation will not have money profit as his objective but the rendering of certain services.

In either case, the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution, and his primary responsibility is to them.

Joseph Coletti / Senior Fellow

Joe Coletti is a senior fellow at the John Locke Foundation focused on fiscal policy issues. He previously headed the North Carolina Government Efficiency and Reform initiativ...

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