Essay

AS1 – Essay

Introduction

The main purpose of this essay is to critically evaluate theMilton Friedman shareholders Theory. He was an American economist and statistician strongly believes in free market capitalism and wrote numerous theories, articles based on economics and statistics.

He gave very famous statement in his essay that ‘The social responsibility of business is to increase its profits’that is the debatable and questionableproclamation (Schwartz &Saiia 2012).

At the same time, it seems that the whole essay is revolve around one elementary statement indicates that business only aims at maximizing the profit by engaging its resources in profit gaining activities.

Apart from that this, statement is associated with the shareholders’ theory that is based on the idea of no moral responsibilities of business other than maximizing its own profit.

Furthermore, this statement was agreed by many scholars and economists who believe in capitalistic approach and also opposed by the modern and liberal scholars who are in favour of conducting the corporate social responsibility by large organisation (Ferrero et al., 2014).

Thus, this essay covers the critical discussion of perusal of this concept, arguments, empirical evidences and relevancy of this statement in current business scenario despite of change and passage of time.

Main Body

Milton Friedman was a Noble winning economist and greatly contributed in the field of economics by developing great theories on cooperate social responsibilities, business ethics, monetary policies, exchange rates and inflation rate. In this manner, he was one of the most influential and intellectual scholar held great knowledge of government public policies and market forces that reshaped the modern capitalism approach (Singh, 2013).

Apart from that, many of his ideas was controversial and found difficult to prove their effectiveness, however, on the other hand, he established the new concept on role of government managing the nation’s economy. It considered as most technical and powerful ideas of open market reformation of privatisation. As to why it shifted the content of debate in U.S towards economic freedom and liberty as these are very essential tools for economic development.

Mr. Friedman cultivated the best theories for managing the money supply in the economy and regulating the inflation fluctuations, later proven beneficial for central bank for controlling the inflation rate without making heavy investments.

There is different opinion of economic scholars on how to analyse and conclude the Freidman statement ‘The social responsibility of business is to increase its profits’ as they found it contradictory at various occasions.

In some of his writings he linked the business responsibilities with society welfare by delivering the worth full deliverables whereas he completely ignored the importance of corporate social responsibilities of large organisation (Matei, 2012).

The most common reading was found that his statement certainly eliminates the moral responsibility of the business towards society. In addition to this, Friedman claimed that managers must mainly focus on making maximum profit and ethics can be side lined. On the other hand, he determined that there is only prime responsibility of business is to make the most of wealth for stakeholders.

Furthermore, he elaborated that, corporate ethics reduces to business legality therefore, it could not be forced to adhere as it affects profit maximisation. While study the Friedman shareholder’s theory it can be interpreted that he never advocates on the perusal on individual interest or society welfare. Orlitzky (2015)

suggested that Friedman has set very high standards in in terms of self-interest and centred that one never advanced his or herself at the expense of others on the ethical grounds.

In concern to this, in his essay Friedman argued that corporate executives must have fulfil their duties to the business though earning as much money as possible complying with society rules and law on ethical and moral grounds.

it is simply means that making maximum profit for business is endless process and this is what stakeholders want. At the same time, business executives must also consider and assess the non-monetary factors while decision making in this whole process.

Moreover, business executives need to identify those opportunities of profit making that can be mobilised for money making for the business (Ioannou&Serafeim, G.2015).As to why in some of the instances stakeholders would not want to reap profit due to non some non-monetary requirements.

For an example stakeholder would not desire its business to earn profit by delivering such products or services that could harm to society.Thus it can be stated that business responsibility can be vary when it comes to stakeholder’s desire changes on the basis some personal discomfort and action lead human extinction or society as whole.

Meanwhile, the major arguments of Milton Friedman’s regarding the main aim of business is to optimize the profit become unsuccessful. Also he failed to prove that social corporate responsibility could be determined as unfair exercise for business.

Apart from this, most of his statement based on CSR activities of large organisation is based on questionable paradigm. There was absence of some logical and important elements in this area.

Friedman embraced the different paradigm for business social responsibility from other scholars stating that corporate social responsibilities could be integral part of business strategic and operational management however; it must not be affects the main purpose of business (Melo et al., 2015).

On the other hand,in his essay he argued that business must not contributes towards social responsibilities to their full capacity and concentrate on the increasing the business profit. At the same time, he also defined that social corporate responsibility is a social doctrine.

He Further depicted that investment in social responsibility leads to cost to the money and it can affect the business core operation activities some or the other way. In this relation, he further determined that the main job of the executivesis to direct the business in such way so that business could achieve the maximum returns in exchange of huge business investments.

Corporate executives work as per the stakeholder’ vision in order to get the pre-determined goals therefore, they must not spend the someone else’s money fulfilling the social responsibilities (Brammer et al., 2012).

These two arguments more likely based on the additional cost lies to business for performing the social responsibilities. In this way, Friedman treated social responsibilities as an extra tax imposed on employer despite of not indenting to pay the payee.

Thus, it can be states that Friedman tried to make the acceptance of this fact that main focus of business is to earn maximum profit instead and social corporate responsibilities can be marginalised in the business.

In regards to this, Friedman argued that business is an artificial person and being as corporation it can have so many responsibilities however he put social responsibility at least position in this list.

While developing his judgment he argued in the agreement of statement he stated that to give the importance to social responsibility is unfair to the business and create the additional cost and set of activities leads to extra pressure to the business (Connolly, 2012).

At the same time, he considered these practices as undemocratic as it passes the governmental power to the corporate executives who must not have general consent to be authorised personal’s in order to govern the business.

Similarly, Friedman illustrated that there is no such monitoring mechanism in place to supervise the huge range of administration power that could create gap between stakeholders and corporate executives. In this direction, he declared such initiatives as unwise decision of the business and could turned into violation of trust.

As to why executives wok for owners as serving agent in order to perform the duties to fulfil their interest and desires (Hilson, 2012). Apart from that, the major ground for Friedman conclusion is that investing in the action of social responsibilities are quite risky to the business as corporate executives are unable to project the consequences of such activities and lie the associate cost to the owners, customers, employees and other stakeholders.

While examining the statement of Milton Friedman it identified that his conclusions were not directly aligned with business ethics and emergence of corporate social responsibility.

At the same time, arguments given by him did not seems to be completely ethically consistent and persuasive enough. Although, he was not in favour of spending owner’s money by corporate executives for self-interest and society welfare however, he highly concentrated on the primary objective of the business that is money making (Tai, 2014).

Whereas, on the grounds of business ethics and morality, it is also the duty of business to serve the nation best and pay back the society in exchange the provided resources.

Additionally, Friedman completely ignored the importance of the social responsibility to the business and denied to accept that it is also one of the important responsibilities of the business.

At the same time, he only focused on the typical and traditional concept of doing business that is seeking and mobilising the sources and opportunities for the business in order increase the profit. He put only one thought in centre in his essay that earning profit is the foremost goal of business and the business does not make profit cannot survive in the market for longer period (Hai-yan et al., 2012).

In this way, it can be stated that Friedman statement of ‘The social responsibility of business is to increase its profits’ overlapped the other important aspects of business.

Due to the passage of time and various change taken place in current business environment this statement is not completely applicable in current scenario. At the same time, it is quite visible that circumstances have been changed. As to why, corporate social responsibility is also considered as important actions to business.

Currently, customer satisfaction, smooth relation among all the stakeholders, brand image and fulfilling the social responsibilities play significant role in success of business. Additionally, now business owners of large corporations equally concentrate on serving the nation to the great extent along with maximizing the profit. Also, they run the business in accordance with strategic mission and vision.

In relation to this, there are many alternative CSR frameworks that interpret the concept of social responsibilities in different manners. For an example, the theory of shareholder value mention that performance of social responsibility plays significant role in building the brand image of the business along with making profit by following the legal implications (Norton, 2015).

However, neoclassical economists Hayek determine that the main function of business is to contribute towards development of society and nation by serving them well. This concept of business eliminates the gap between primary and other functions to business. Although, it is not considered as most effective mode of utilising the resources in capitalistic economy.

On the other hand, the economist and agency theorist mention that is the moral as well ethical duty of business owners and management to make timely payment to suppliers and distributers. Apart from that, to provide the healthy working environment and fair remuneration to employees is also essential part of stakeholder’s main responsibilities (Fontaine, 2013). In this manner, this theory majorly emphasis on area of stakeholder’s interest rather than prime responsibilities. It also outlines the other important functions of business that can effects its success.

On the other hand, some of the scholars stated that ethical responsibilities represent the standards, prospects and certain belief of employees, customers, stakeholders look towards the fair treatment of business (Schmitz & Schrader 2015).

In relation to this, ethical responsibilities are stated as moral duties of the business to adhere the fairness, transparency and justice in the business functions so that all potential risks can be eliminated and negative influences get omitted from organizational management.

Apart from that, as per the traditional stand point of corporation, its primary function is to make profits and functions to be money-centred perspective, although business ethics are also important but they lead to moral conflicts that constraints to profit making actions (Jensen & Berg, 2012).

Moreover, these constraints arise the situation of moral dilemma like as how organisation ensure that individual finding better employment and promotion opportunities must be treated honestly. The major concern company face is that how to manage these conflicts internally so that it cannot effects the affect the individual as well as organisational performance and goals.

In this way there are large series of challenges that can be confronted to business in daily operational schedule and create the problems in order to achieve the primary goals of business.

In is very difficult situation when it comes to manage the economic responsibility along with legal one. In context to industrial business, an industrial plant can be profitable that dispose of material waste and toxins openly harm the environment and against the legal industrial implications.

If the plant continues the business and there is no action taken for ending the business, in that case it seems to be violated industrial laws (Lim, & Greenwood 2017).However, there is other side as well that shows that the workers won’t lose their jobs, supplier can continue his contracts and end customer will be served as usual.

In this way, one source of business is connected with so many parties that can be directly affected and society is benefited some or the other end.

Therefore, it can be stated that is the foremost duty of the corporate executives to establish the coordination between organisations goals and social welfare and more specifically in current business scenarios where in CSR activities are medium of building the brand image in the market (Pérez et al., 2013).

Thus, Larger companies must adopt sustainable economic and social practices in order create balance in social realm and corporate profit. So that in this manner, business can target its goals of profit making without harming the environment and effected the end customer and society.

Conclusion

On the basis of above discussion, it can be stated that Milton Friedman majority stressed on the single statement that is ‘The social responsibility of business is to increase its profits’. However, the relevancy of this famous statement reflected as unclear and traditional business theory of profit making.

With the passage of time and modernisation of corporate business culture it is not completely applicable at present scenario. In the essay written by Freidman, it is stated that the main responsibility of business is to maximise its profits by optimum utilisation of its resources and the importance of corporate social responsibilities are over sided.

References

Brammer, S., Jackson, G., & Matten, D. (2012). Corporate social responsibility and institutional theory: New perspectives on private governance. Socio-economic review10(1), 3-28.

Connolly, N. (2012). Corporate social responsibility: a duplicitous distraction?. The International Journal of Human Rights16(8), 1228-1249.

Ferrero, I., Michael Hoffman, W., & McNulty, R. E. (2014). Must Milton Friedman embrace stakeholder theory?. Business and Society Review119(1), 37-59.

Fontaine, M. (2013). Corporate social responsibility and sustainability: the new bottom line?. International Journal of Business and Social Science4(4).

Hai-yan, H., Amezaga, T. R. W., & Silva, B. O. (2012). Corporate social responsibility perspectives and practices in Chinese companies: A brief overview on environment, consumers and external communication. J. Mgmt. & Sustainability2, 57

Hilson, G. (2012). Corporate Social Responsibility in the extractive industries: Experiences from developing countries. Resources Policy37(2), 131-137.

Ioannou, I., &Serafeim, G. (2015). The impact of corporate social responsibility on investment recommendations: Analysts’ perceptions and shifting institutional logics. Strategic Management Journal36(7), 1053-1081.

Jensen, J. C., & Berg, N. (2012). Determinants of traditional sustainability reporting versus integrated reporting. An institutionalist approach. Business Strategy and the Environment21(5), 299-316.

Lim, J. S., & Greenwood, C. A. (2017). Communicating corporate social responsibility (CSR): Stakeholder responsiveness and engagement strategy to achieve CSR goals. Public Relations Review43(4), 768-776.

Matei, M. (2012). Involvement of United Nations Organization in Promoting Corporate and Institutional Social Responsibility. Economic Insights-Trends & Challenges64(2).

Melo, T., &Garrido‐Morgado, A. (2012). Corporate reputation: A combination of social responsibility and industry. Corporate social responsibility and environmental management19(1), 11-31.

Norton, J. J. (2015). Reflections on in the Best Interest of the Corporation and Corporate Social Responsibility: An Essay Honouring the Memory of Professor Alan R. Bromberg. SMUL Rev.68, 603.

Orlitzky, M. (2015). The politics of corporate social responsibility or: why Milton Friedman has been right all along. Annals in Social Responsibility1(1), 5-29.

Pérez, A., Martínez, P., & Del Bosque, I. R. (2013). The development of a stakeholder-based scale for measuring corporate social responsibility in the banking industry. Service Business7(3), 459-481.

Ransome, W., &Sampford, C. (2016). Ethics and socially responsible investment: A philosophical approach. Routledge.

Schmitz, J., & Schrader, J. (2015). Corporate social responsibility: A microeconomic review of the literature. Journal of Economic Surveys29(1), 27-45.

Schwartz, M. S., &Saiia, D. (2012). Should Firms Go “Beyond Profits”? Milton Friedman versus Broad CSR 1. Business and Society Review117(1), 1-31.

Singh, R. K. (2013). Corporate social responsibility: A business solution for sustainable and inclusive development. Prabandhan: Indian Journal of Management6(12), 5-17.

Tai, F. M., & Chuang, S. H. (2014). Corporate social responsibility. Ibusiness6(03), 117.

Leave a Comment