The Evolution of the Corporation

Cleaning agentInterview Niall FitzGerald co-chairman and chief executive Unilever. theguardian. Retrieved from http://www.guardian.co.uk/business/2003/jul/05/unilever1?INTCMP=SRCH Friedman, M. (1970, September 13). The Social Responsibility Of Business is to increase its profits. The New York Times.

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.

Institutional ownership also plays a part in monitoring, and controlling agency costs within the corporate form of organization. Nature of Agency Relationship Problem In the corporate form of business, the primary goal should be to maximize long-term value and owners’ value, or shareholder wealth maximization (Brigham, & Houston, 2011). The problem is that managers, who are supposed to make the decisions that would best serve the corporation, are naturally motivated by self-interest, and the managers’ own best interests may differ from the principal's or stakeholders best interests. An agency problem that exits in the corporate form of business is the conflict of interest between the company's management, and the company's stockholders. The relationship between the stockholders and corporate management is often based upon those conflicting interests that arise from a separation of ownership and control, differing management and stockholder objectives, and an information asymmetry that exists between the two groups (Fama & Jensen, 1983).

A normative theory of business ethics engages the theories and norms with human lives. By translating the philosophical thinking and language, and making it understandable for society, the theory offers people ethical directions for their business actions. Stockholders theory is also known as The Friedman doctrine that states a company’s only responsibility is to increase the profit. According to the theory, managers of a company have to rights to expand the business without stockholders authorization. In other words, the manager is obligated to follow the directions of the stockholders nevertheless whether it is legal or not.

American Business Law Journal, 36, 73-149. doi:10.1111/j.1744-1714.1998.tb01017.x Tagliabue, J. (1997, October 3). Old world charm bumps into new world economics. New York Times. Retrieved from: http://web.ebscohost.com.proxy1.ncu.edu

Fair Trade was introduced to balance this inequality and help exploited producers break free of the vicious cycle of poverty. This paper tackles the moral problem of fair trade. There exists a dilemma here, with respect to the role of corporate actors within our society; do they serve to increase profits only, or are they bound by a different morality? The role of business in society has to be understood in the context that a business is not an entity capable of action, no matter what the purpose of its formation was. A business, ultimately, is a group of resources, including people, and those people are not separate from society as a whole, indeed, they are society as a whole.

), Ethical Issues in Business: A Philosophical Approach, 7th Edition (Prentice Hall, Englewood Cliffs, NJ). Friedman, Milton. 1970. The social responsibility of business is to increase its profits. New York Times Magazine.

Corporate directors have an important job of representing interests of stakeholders ranging from profit maximization in interest of shareholders, to a broader set of stakeholder interests such as creditors, employees and customers. These are governance systems with competing interests because you cannot focus on profit maximization for shareholders whilst keeping in mind stakeholders needs for employment and stability. The answer perhaps is found in “enlightened shareholder value” approach that provides a more comprehensive analysis on the issue by compromising interests of both parties. The shareholder theory states that directors have delegation for decision making authority to manage the company with the exclusive purpose of maximizing shareholders return on investments. “In the traditional view of the firm, the shareholder view, the shareholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them.” (Miles, 2011) Therefore, actin in company’s interests is to conduct the business in the way that promotes shareholder interest and value.

The above statement is an adaptation of how business executives may act in a way that violates ‘shareholder primacy’. I disagree with the statement made as I feel that in fact businesses have a moral obligation to serve all stakeholders and not just maximise profit for shareholders. I will be enhancing this position through introducing the models relevant to corporate social responsibility, and by; discussing, evaluating and refuting the two strongest arguments that support the moral minimum model and finally evaluating two arguments that are in favour of the stakeholder model. My position will then be further enhanced by attempting t... ... middle of paper ... ...es. I have done just that by refuting the two strongest arguments for Shareholder Primacy, by evaluating the two strongest arguments for the stakeholder model and rebutting any counter-arguments to them.

(2011). From BusinessDictionary.com. Retrieved October 22, 2011, from Google.com. Friedman, M. (1970, September 13). The Social Responsibility of Business is to Increase its Profits.