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The importance of ethics and values in business sustainability
The importance of ethics and values in business sustainability
Strengths And Weskness Of Stakeholder Analysis
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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
The definition of stakeholder is “ Any group or individual who can affect or is affected by the achievement of the organizations objectives.” (Freeman, 1984). Three stakeholders that have been identified are old employees (50s-60s), young employees, and shareholders. These three stakeholders could be affected the most by the CEO’s decision.
A famous quote taken from his book Capitalism and Freedom, details that ‘there is one and only one social responsibility of business- use its resources and engage in activities designed to increase profits as long as it stays within the rules of the game’ . He feels that Directors or CEO’s of a business have a ‘’direct responsibility’’ to their employee’s i.e. its shareholders, and so therefore should aim to ‘’make as much money as possible while conforming to their basic rules of society’’ both in law and ethical custom.
In this essay we take a look at the famous Milton Friedman's essay "The Social Responsibility of Business is to Increase Profit ". The following paper is an attempt to critically evaluate the article in consideration of Freeman Stakeholder Theory. First thing, let us start with a little overview of what Milton Friedman exposed in his article. It seems that the whole point of his essay revolves around one basic statement which clearly says that the only social responsibility of a business is to use its resources and engage in activities designed to increase its profits so long it stays within the rules of the game (Milton Friedman, the social responsibility of a business is to increase profit). We probably all agree that the primary objective of any business is to achieve revenue and attain a certain profit.
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).
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.
In recent years, companies are becoming socially responsible and now stakeholders almost expect a company to have CSR policies. Therefore, in twentieth century, corporate social responsibility (CSR) became an important development in public life (Barnett, ND).Corporate social responsibility is defined as “the ways in which an organisation exceeds the minimum obligations to stakeholders specified through regulation and corporate governance” (Johnson, Schools and Whittington, N.D cited in March, 2012). Stakeholders can be defined as “those individuals or groups who depend on the organisation to fulfil their own goals and on whom, in turn, the organisation depends” (Johnson, Schools and Whittington, N.D cited in March, 2012). There are many purposes for this essay, the first purpose is to descried the key principles of corporate social responsibility and explain their importance for stakeholders. Secondly, is to show how far this company follows those principles in order to be accountable to at least three of its stakeholders. In this essay, three stakeholders, environment, customers and employees will be evaluated respectively and the key principles of the stakeholders will be examined.
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.
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).
Friedman, M., (2007). The Social Responsibility of Business Is to Increase Its Profits. In W.
Business organizations regularly run into demands from various stakeholders groups when conducting day-to-day business. These demands are generated from employees, customers, suppliers, community groups, governments, and shareholders. Thus, according to Goodpaster, any person or group of people that can shape or can be shaped by attainment of the objectives by an organization is considered a stakeholder. Most business organizations recognize and understand their responsibilities to these groups and endeavor to honor and fulfill them. These responsibilities are often communicated to the public by a statement of principles or beliefs. For many business organizations, corporate social responsibility (CSR) has become an essential and integral part of their business. Thus, this paper discusses the two CSR views: the classical view and the stakeholder view. Furthermore, I believe that the stakeholder view has brought ethical concerns to the forefront of businesses, and an argument shall be made that businesses would improve both socially and economically if CSR, guided by God’s love, was integrated into their strategic planning.
Milton Friedman is known in the business world for not having patience, he believes that companies are not truly concerned with making a profit but they are also promoting social conscience and need to take care of the employees, abolishing discrimination and pollution (Friedman, 1970, p. 3). In this article Friedman that the social responsibility of any company is to increase profits year over year (Friedman, 1970). Friedman believes if you give your employees the right to use their social responsibility, this would make an employee responsible for their action and ideas. The idea behind this theory is that it will make it very difficult for anyone to try taking advantage of co-workers for advancement in the company (Friedman, 1970, p. 3).
It seems obvious that large corporations have a tendency to ignore the negative effects of their actions in favor of profit. This example, although sensationalized, still says to me that with power comes responsibility. It affirmed my belief that a corporation’s goal cannot be just to provide profit to shareholders, but there must also be an element of social responsibility.
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
Stakeholders refer to individuals or groups of people that have an interest in a business. Management argues that as long as there is wealth for shareholders, then anything is done in a responsible manner and things should be done to promote the interest of other stakeholders.