Thursday, October 8, 2020

Technology Can Harness Stockholder Profit to Drive Social Responsibility [a teaser]

Is stockholder capitalism inherently harmful? It is widely felt that that the legacy of Milton Friedman and his “primacy” of stockholder profit have taken us to a bad place. But we have ignored how the digital era enables a new reconciliation of stockholder versus stakeholder capitalism. 
Digital markets can make new levels of stakeholder participation efficient in determining how much of who's money to spend on what Corporate Social Responsibility (CSR) programs – and in ensuring that translates to increases in long-term profit for all to share in. This can break through the still-unresolved dilemma that Milton Friedman cited in his now-maligned article.

This new opportunity that technology creates relates to Friedman’s observation that an executive spending on social responsibility is “in effect imposing taxes” on the shareholders, customers, and employees. He argues that is beyond the ability or proper authority of an executive of a private business. 

But now we can apply increasing levels of “digital democracy” to the workings of Corporate Social Responsibility. Digital democracy can inform mechanisms to poll stockholders, customers, and employees on what level of CSR taxes they will accept, to be spent on what programs.

previously wrote about how my FairPay framework can be expanded to address customer-driven CSR . Recent coverage of Friedman spurred me to expand that to also address stockholders and employees, and have submitted an article on this theme for publication. In the meantime, here is a teaser.

FairPay suggests how computer-mediated dialog and emerging forms of “impact data” can help elucidate the ends that consumers seek and what they are willing to pay toward those ends. This customer participation can apply not only to the pricing of services they purchase, but to the “Social Responsibility-as-a-Service” (SRaaS) ends they agree to be “taxed” on for the benefit of others.  Some detail on how that can work is in my post from a year ago, The Reformation of Market Capitalism in The Age of the Customer -- Profiting From "Social Responsibility as a Service". Since it is the customers who pay directly to fund the business -- including whatever revenue makes its way to stockholders and employees -- it seems only right that customers should have the most say in how their “tax” money is raised and spent for CSR. 

Digital democracy methods can also be applied to learn the willingness of the stockholders and employees to be "taxed" for CSR. Of course any of these stakeholders "could separately spend their own money" on similar ends, as Friedman observes, but the business is in a unique position to be efficient (and nimble) in optimizing the social effects of its own operations.

It is evident that increasing numbers of customers, stockholders, and employees believe CSR is important and want to contribute to such efforts in efficient ways. Markets are unrivaled in seeking efficiency, but have limitations in dealing with unrepresented stakeholders and other externalities. To the extent we can efficiently represent those stakeholders and internalize the externalities in the course of routine business operations, markets become more efficient – and more win-win. 

As such methods mature, SRaaS can have all the efficiency we expect of market-based mechanisms and entrepreneurial incentives, thus enabling an invisible hand to distill the wisdom of the crowd and mass-customize broadened value propositions tailored to individual stakeholders and the impacts they desire.