On September 13, 1970, Milton Friedman wrote and article, Social Responsibility of Business is to Increase its Profits. One of Milton’s theories suggested that the only legitimate incentive for a corporation to exist is to maximize its profits with its shareholders. As companies progress over time, so does the reason for the company existence. “What makes a stake holder?” Isabel Hilton (GE Stakeholders 2009) “What makes a stake holder? If you take a broad view of business then almost anyone who is affect by the operation of the business is a stakeholder. There’s a narrow view, which is about shareholding, profit, and profit line. But there’s a much wider view, which is all the other activities, all the other impacts that business can have. So if as a business you go and do something in a particular community, you know there’s a financial calculation, but there’s all sorts of other social calculation, there are social impacts, there are benefits, there are downsides. And the view of an enlighten company are that all these things are important.” Isabel Hilton (CEO, China Dialogues & Journalist) (GE Stakeholders 2009) A stakeholder comes from wide variety of people and activities that impacts the company; from shareholders and investors to consumers to the distribution of the products, as well as everything in between. This can affect the company growth as a whole. When groups of people come together to form a small study group or a company, they are all able to accomplish something. They can achieve something small such as passing a test to something larger like, contributing to society. Investors use corporate performance evaluation to assess how well the company is doing over a period of time. In order to satisfy its investor... ... middle of paper ... ...ite/google/?ndmViewId=news_view&newsId=20090721005113&newsLang=en Web. 21 July 2009 “GE Foundation Fact Sheet” http://www.ge.com/foundation/about_ge_foundation/ge_foundation_fact_sheet.jsp Web. “Environment, Health & Safety” http://www.gecitizenship.com/our-commitment-areas/environment-health-safety/ Web. 2010 “From Newsweek: Global Companies” http://www.youtube.com/watch?v=wT7yOamJ-tY&feature=player_embedded Web. 14 April 2009 “Citizenship” http://www.ge.com/company/citizenship/ Web. “Rethinking the Social Responsibly of Business” http://reason.com/archives/2005/10/01/rethinking-the-social-responsi/print Web. October 2005 The New York Times Magazine: “The Social Responsibility of a Business is to Increase its Profits” http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html Magazine. 13 September 1970
Ciulla, J. B., Martin, C. W., & Solomon, R. C. (2007). Is "The Social Responsibility of Business... to Increase Its Profits"? Social Responsibility and Stakeholder Theory. Honest work: a business ethics reader (pp. 217-253). New York: Oxford University Press.
Furthermore, he believed that any corporation assuming a more socially responsible attitude would be met with economic limitations, rendering them less competitive in the market area (Friedman, 1970). R.E. Freeman’s ‘Stakeholder theory’ is often seen as a better alternative to Friedman’s ‘Shareholder primacy theory’. Both the Stakeholder theory and Shareholder theory are normative theories explaining what a corporations social responsibilities ought to be and both adopt a similar stance on management’s accountability (Smith, 2003). However, the Stakeholder theory states that a manager’s duty is not only to focus on shareholder’s interests, but also to balance them against the interests of the company’s other stakeholders. Freeman believes that managers should take into account their customer’s, supplier’s and employee’s interests, even if it brings about a decrease in shareholder returns (Smith, 2003). This is being expanded on because Freeman believes that if Friedman were alive today, he would be a supporter of his Stakeholder Theory. Simply because, in today’s day and age, globalization and increased competition in the markets has led to corporations having to rely not only their shareholders for support but on all their stakeholders (Makower,
In a capitalist society where the growth and power of corporations are ever evolving it is critical to determine the effects and consequences this evolution brings upon the business world. The Stockholder Theory maintains that managers should act merely as agents to the stockholder and only serve their interests-the maximization of profits (45). Milton Friedman's argument being, they are the owners of the business, and hence they should be entitled to all profits (45). Although this simple profit-motive concept may achieve the desired result, and address all of the interests of the stakeholders it lacks compassion that is so prevalent, and in my opinion superior, in the following theory.
The first discussion question posed was, “How does Dr. Friedman characterize discussions on the “social responsibilities of business”? Why (Jennings, 2009, p. 79)? Friedman (1970) characterized the discussions on social responsibilities as one hundred percent unadulterated socialism. Friedman (1970) characterized these discussions in that manner because he felt that a corporate executive should focus solely on making profits and not on social aspects. He mentioned how people who conduct and express themselves in this fashion are positively reinforcing and supporting the actions of individuals that have been weakening the foundational blocks of free society. Friedman (1970) posed a question which was the crux of his 1970 article “The Social Responsibility of Business is to Increase its Profits” where he investigated the true contextual meaning of what responsibilities mean to businesses. Friedman describes how businesses cann...
The advantages spilling out of firms should be shared all in all. This postulation is like the partners model (Freeman, 1984) and claims that a firm is mindful to its shareholders (proprietors) as well as to all partners (purchasers, representatives, loan bosses, and so on.) whose commitment is essential for an association's prosperity. Accordingly, CSR implies that a company ought to be considered responsible for the greater part of its activities that influence individuals, groups and the earth in which those individuals or groups live (Frederick et al.,
This paper will have a detailed discussion on the shareholder theory of Milton Friedman and the stakeholder theory of Edward Freeman. Friedman argued that “neo-classical economic theory suggests that the purpose of the organisations is to make profits in their accountability to themselves and their shareholders and that only by doing so can business contribute to wealth for itself and society at large”. On the other hand, the theory of stakeholder suggests that the managers of an organisation do not only have the duty towards the firm’s shareholders; rather towards the individuals and constituencies who contribute to the company’s wealth, capacity and activities. These individuals or constituencies can be the shareholders, employees, customers, local community and the suppliers (Freeman 1984 pp. 409–421).
Friedman, Milton. 1970. The social responsibility of business is to increase its profits. New York Times Magazine. September 13.
Friedman, Milton. “The Social Responsibility of Business Is to Increase Its Profits.” From The New York Times Magazine, September 13, 1970. Rpt. in Open Questions: Reading for Critical Thinking and Writing. Eds. Chris Anderson and Lex Runaman. Boston: Bedford / St. Martin’s, 2005. 518-525. Print.
There gives off an impression of being general understanding among organizations that specific gatherings are stakeholders, as shareholders and speculators, workers, customers, and suppliers. Past these, nonetheless, it turns out to be additionally testing in light of the fact that there are no unmistakable criteria for characterizing stakeholders. Most creators concur that if the expression "stakeholder" is to be significant, there must be some method for isolating stakeholders from non-stakeholders. A few creators have recommended that stakeholders are those that have a stake in the organization's exercises - something at danger. Different creators have proposed that on the off chance that you consider the worldwide effects of industry -, for example, environmental change or social changes because of promoting and publicizing - everybody is a stakeholder. The issue of qualifying criteria for stakeholder status is right now being wrangled about. Accepting that the principle stakeholders have been recognized, the following test for corporate administrators is to create methodologies for managing them. This is a test in light of the fact that distinctive stakeholder gatherings can, and frequently do, have diverse objectives, needs, and requests (Burchell & Cook,
Friedman argues that, for example a corporate executive has a responsibility to his employers, which is usually to make as much money as possible for the company while conforming to the laws and ethical customs of the society. This employer, outside his work, may devote his time and money to certain charities that he regards as worthy and while these are social responsibilities they are the individual’s social responsibilities, not the company’s. Friedman in a sense says how entities have responsibilities; it is the people that have the responsibilities. A corporation in a way is too vague of an entity to assume responsibilities. Again, he feels ‘’that the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation…. And his primary responsibility is to them’’ . The only responsibility a director should have is to its shareholders and not to society or any other interest group or public good. And so if the interest of the shareho...
A stake holder, in general is defined as an individual or organization likely affected by the performance of an organization. In “The stakeholder theory of the corporation: Concepts, evidence, and implications” by Thomas Donaldson , he quotes Stanford research institution and calls stake holders “those groups without whose support the organization would cease to exist.”
The article “The Social Responsibility of Business is to Increase its Profits” is written by a famous economist Milton Friedman. Friedman in this article implies that shareholders are the main drivers of the corporations and he believes that it is to them corporations must be socially responsible to. The goal of any corporation is to maximize profits and return the portion of these profits to shareholders for investing in the corporation. The shareholders can themselves decide which social causes to take part in rather than assigning a corporate executive to decide on their behalf. Friedman argues that a corporation must have no social responsibility to society because its only concern is the increase profits for itself and its shareholders.
A consequences of focusing on organization or company’s stakeholder is that the shareholder value itself can be enhanced and improved when a wider stakeholder group-such as employees, provider or credit, customers, suppliers government and the local community is taken into account (Mallin, 2011). This theory also related to the organization management and business ethics that uphold moral and values in managing a company as it will covers the benefits to the society and other external parties as a whole rather than just for the internal parties.
Friedman, M. “A Friedman Doctrine – The Social Responsibility of Business is to increase Its Profits”, The New York Times Publications, September 13, 1970
Although primary objective for managers is to maximise shareholders’ wealth, but many firms are started to focus on other stakeholders’ interests in recent years. Company can prevent transfer the damage of stakeholders’ wealth to shareholders when focus on stakeholders’ interests. In other words, “social responsibility” for the companies is to maintenance stakeholders’ relations in order to provide long-term interests to shareholders. By this way, conflict, turnover and litigation of stakeholders can be minimise. Obviously, company can achieve their primary objective by cooperation with stakeholders instead of conflict with stakeholders (Smart, Megginson, Gitman, 2002).