Limited Corporate Social Responsibility

Many people believe that businesses, like good citizens, should engage in philanthropy and act as ethically as possible in all circumstances. This sounds honorable, but it should not be taken too far. Businesses should not be excessively charitable. In fact, it would be unethical for a business to use its funds for Utilarian means. Let me illustrate this idea in the following historical example:

The year is 1916 and the Ford Motor Company has been hugely profitable with the introduction of the Model T. Henry Ford wished for everyone in America to be able to purchase these cars so he steadily lowered the price, and planned to build more factories and employ more workers.

Sounds like a great idea... if you hate America and free market economy.
Where would he get the money to do this charitable expansion?
By depleting the $60 million company surplus and suspending the dividends to be paid to investors, of course.Well the shareholders (including the Dodge brothers who started their own motor vehicle company) were disappointed. They had given their hard-earned money to Ford with the expectation of a generous return.

Note:The value of any asset is the present value of the expected future cash flows to be generated by that asset. No one would choose to invest in a project that had no expected return, DUH!

So the Dodge bros were like WTF?! and they sued Ford. The court held that a business is organized primarily for the profit of the stockholders, as opposed to the community or its employees. The discretion of the directors is to be exercised in the choice of means to attain that end, and does not extend to the reduction of profits or the nondistribution of profits among stockholders in order to benefit the public, making the profits of the stockholders incidental thereto.

It makes a lot of sense to economists, but probably not to those radical liberals who believe Corporate America is evil.