Managing the sociology of finance

Citation

Foo, C.T. (2015), "Managing the sociology of finance", Chinese Management Studies, Vol. 9 No. 3. https://doi.org/10.1108/CMS-06-2015-0129

Managing the sociology of finance

Article Type: Editorial From: Chinese Management Studies, Volume 9, Issue 3

Advocates of the monetarist approach, The Chicago School of Economics as led by 1976 Nobel Prize winner Milton Friedman, have long advocated a very narrow, pared-down shareholder view of corporatism. Indeed, he titled a 1970 article for The New York Times magazine (see note[1]) that illustrates his deep conviction “The Social Responsibility of Business is to Increase its Profits”. He ought to have chosen his words much more carefully for future economic mindsets: had he done so, he would not have said of “Business” but rather “Corporation”.

In the article, Friedman qualified: “[…] the situation of the individual proprietor is somewhat different […]” His argument here is especially intriguing in that it appears to be emphasizing the individuality behind the legal ownership of money. “If he acts to reduce the returns of his enterprise in order to exercise his ‘social responsibility’, the proprietor is using his own money”. Using this logic, Friedman illustrates a very different perspective than that of the executive of a corporation: the money does not just belong to one person!

Friedman’s vision is synchronistical as he states that, at the time of spending, money belongs not to the executive and there are no observable benefits of spending it for the corporation. Our paper in this issue (with Professor Yuanhui Li) entitled “A Sociological Theory of Finance: Societal Responsibility and Cost of Equity”, suggests Friedman may be brought back on track.

His main critique against social responsibilities of a corporation includes, in his own words, “[…] analytical looseness and lack of rigor […]”. So, as a result, in our search for justification, we need to utilize rigorous statistical analyses. Using information from the China Stock Market and Accounting Research (CSMAR) database and a massive 1,015 corporate social responsibility (CSR) reports, the very cost of capital (equity: funds) is shown to be reduced given CSR behavior. In other words, there has been, over time, a looping back of monetary benefits. Surely, Milton Friedman would agree wholeheartedly that the cost of money (funds, equity or capital) lies at the very heart of monetarism.

I am very pleased to contribute an editorial for this remarkable issue that includes contributions from Professor Yuanhui Li and Professor John Ferguson. Incidentally, Ferguson is Professor of Accounting at the University of St. Andrews in Scotland, which also happens to be my alma mater. He previously held a Chair in Accounting at the University of Strathclyde and his research interests are in the areas of corporate governance and accountability. He is currently the joint editor of the Social and Environmental Accountability Journal and sits on the editorial boards of Accounting, Auditing and Accountability Journal, Accounting and Business Research and Issues in Accounting Education. In addition, John sits on the Executive Board of the British Accounting and Finance Association as well as the Executive Council of the Centre for Social and Environmental Accounting Research.

How I sometimes wish time could be held back but it flies forward. In 1990, I earned my doctorate from the University of St. Andrews and in 2004, I returned to the university as a Visiting Professor of Competitive Strategy. I thoroughly enjoyed myself when I came back to Scotland, in particular the fresh sea air and the sounds of the waves in the small Anstruther harbor where life is quiet, reflective and idyllic and ideas just float by.

A sleepy seaside village is quite a contrast to the bustling, growing, metropolitan city of Beijing where Professor Yuanhui Li works at Beijing Jiatong University. Unpolluted, fresh air is fundamental to living a healthy life and it can appear as though fresh air is in danger of being lost in the fast-paced development of China’s economy, fueled by a blind, monetarist pursuit of profit by corporations and individual proprietors following Friedman’s example. Surely there is much more to life than making money? Social responsibility ought to matter more. In the final analysis, money is not an end in itself but a tool like any other tool in the way that fire is a tool and its role can be to alleviate the sufferings of humanity. So too should be money’s main purpose in our society.

Somehow in the process of evolving, our global society has come to overemphasize the role of money. Money has become an end in itself, no longer the means. For this reason, I have titled this editorial: “Managing the Sociology of Money”. Researchers and scholars should be developing theories on how we ought to manage in our instantaneous society and the role of money within it.

Check Teck Foo, Editor-in-chief

Note

1. http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html