Freeman Vs. Friedman's Stakeholder Theory Of The Modern Corporation

Improved Essays
Register to read the introduction… They may have other responsibilities such as their church, their family, and/or their country that they deem worthy of their time and efforts. These are what Friedman refers to as “social responsibilities”. However in these respects the businessman is acting as a principal, not an agent. He spends his own time and money, not that of his employer; therefore these “social responsibilities” are those of an individual, not of businesses. Friedman asks, “What does it mean to say that the corporate executive has a ‘social responsibility’ in his capacity as a businessman?” (2). This means that the executive must sometimes act in a way that is not in his employers’ best interest. Several situations may arise in which he must, to an extent, “spend” the money of his stockholders, customers, or employees. When he does this, he is, in a way, imposing “taxes” on these people, as well as deciding where the proceeds should be spent. Friedman explains, “Here the businessman…is to be simultaneously legislator, executive, and jurist. He is to decide whom to tax and for what purpose, and he is to spend the proceeds…to restrain inflation, improve the environment, fight poverty, and so on and on” (3). Freeman writes on to explain how sometimes, the categorization of certain actions as “social responsibilities” is really a way for the firm to “generate goodwill as a by-product of expenditures that are …show more content…
Nobody likes being told what to do. Although not explicitly stated, this is something that both theorists agree upon. Both men agree with the “invisible hand” doctrine which calls for true free enterprise in which the government need not interfere. On the other hand, however, there are obviously several things that the two men did not agree upon. The main point that the theorists disagreed on was as to who actually held stake in the business. According to Friedman’s classical beliefs, the only people that have stake in the business are the people who own stock in the business, or the owners. While Freeman recognizes that the owners are indeed vital to the corporation, and that they should be rewarded for this, he also points out that there are several other factors, or stakeholders that are vital to the success and survival of the firm. Friedman is interested in how much money the firm can make right now, he is interested in the current state of the firm; he talked nothing of the future – merely of current profits. Freeman, on the other hand, believes quite the opposite. He writes, “We shall attempt to rebuild the ship, plank by plank, while it remains afloat” (Freeman 38). What he means here is that even if the firm is currently surviving, there is always something that we can do to

Related Documents

  • Improved Essays

    Friedman builds a case that (1) a business does not have responsibilities, businessmen do and they are acting as an agent of the principle (the company) and should therefore be serving the interests of the stockholder (Friedman 1970). Gibson (2000) despite supporting stakeholder theory, the component that “an individual surrenders a degree of autonomy to an organisation” (Gibson 2000; p. 252) is still relevant in the traditional view. If the shareholders’ interests are in line with maximising profits than, to a certain extent, so too are the businessmen’s actions. (2) If they were able to spend the profits of stockholders, a big issue would be knowing how much of the profits they are able to spend before it stops being the shareholders’ profits and becomes their losses, hence damaging their competitive advantages (Friedman 1970). Gibson (2000) also supports that it is not adequate for all stakeholders to be given an equal benefit because if stakeholders (other than the shareholders) are given power of influence over the business it is not fair that shareholders are not given, in return, power of influence over society’s communities and initiatives.…

    • 1433 Words
    • 6 Pages
    Improved Essays
  • Improved Essays

    During the 1970 we have to admit that Milton was right about his writing, the only social responsibilities of the Corporate was to make profit for shareholders. Reason why Mr. Friedman argues that a corporation, unlike a person, cannot have responsibility because no one will get in business with a corporate if they realize that the corporate cannot pay its bills.” Only people can have responsibilities” and “presumably, the individuals who are to be responsible are the businessman”.so for that reason, Corporate should have a moral responsibility which is integrity and Ethics we are studying today. There are other rules that businesses must adhere to if they wish to be successful; such as the obvious rules of the marketplace including supply and demand. In addition, as we have seen with the proliferation of ‘new’ technologies, the law usually…

    • 759 Words
    • 4 Pages
    Improved Essays
  • Improved Essays

    This is because, as Friedman says, an executive should be selected based on his ability to run a business, and not based on his knowledge on how to battle social issues like inflation (Friedman, 4). An executive who attempts to solve a problem they are not knowledgeable of, is running the risk of making matters worse. Additionally, there is no way for an executive to know how much of the company’s resources can be justifiably allocated towards general social interest. Should an executive stop at 5% revenue like Mackey, or should they be putting aside more or less of their resources? Again, there is no way for an average executive to know this.…

    • 1021 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    In his article, The Social Responsibility of Business is to Increase its Profits, Milton Friedman argues that the only duty of a company towards society, referred to as a social responsibility, is to work towards the best interest of its owners; usually to maximize profits within the confines of the law . As a company is not an intelligent being, Friedman uses corporate executives as the primary subject of most of his arguments. As an employee of a firm’s owners, an executive is under legal obligation to serve them as a custodian of their private property and serve this role within the rules of the free market, engaging in legal, open and free competition. If they feel that they have some other higher responsibility as an individual than they…

    • 1459 Words
    • 6 Pages
    Improved Essays
  • Improved Essays

    A business’ main priority is to make money. You have no meaning to a business, merely a way to get to its end goal, maximized profit. Duska makes a clear argument for what you should be loyal too and not loyal too. He describes that a business is a different type of group, with weak, insignificant, relationships. Businesses like to make the false argument of working as a team, but Duska states “loyalty to a team is loyalty within the context of sport or a competition.…

    • 1082 Words
    • 5 Pages
    Improved Essays
  • Improved Essays

    Corporate Social responsibility is a moral and ethical Standard of an organization. Everyone has a social responsivity to society, not just business but also individual’s .We all have to work towards building a better society. Some companies are philanthropist, having extent socially responsibility to its employees and the general community in which it operates. Some economists think a corporate social responsibility should be to maximize profit while others think it’s about giving back to the community and acting in an ethically and morally manner. One such economist is Milton Friedman, who believes that social responsibility of a corporation is to make a profit.…

    • 1735 Words
    • 7 Pages
    Improved Essays
  • Great Essays

    A company’s self interest is always prioritized. CSR is only used as a way to make consumers believe that they are helping society. The final accomplishment businesses wish to complete is a big bottom line. Additionally, companies don’t really help out communities, they only pretend to. By using intelligent marketing strategies and launching very inefficient campaigns, consumers can be easily fooled and fail to analyze a company’s true motives.…

    • 1503 Words
    • 7 Pages
    Great Essays
  • Superior Essays

    Andreas Hillas Aaron Bartolome Ethics 11/20/17 What Should a Business do? The debate on what a business should do is ever changing. An ethical dilemma for many companies and business alike; but, what is the moral duty of a company? Is it to maximize profits, benefit the consumer, or create a happy community? Someone like Milton Friedman would say that a business does not have a moral obligation to the community, but does have an obligation to maximize profits for shareholders.…

    • 1226 Words
    • 5 Pages
    Superior Essays
  • Improved Essays

    Corporate social responsibility ! this essay is going to discuss A business’s only responsibility is to produce profits.To what extent do you agree with this statement ! to answer whether am I for or against corporate social responsibility, I would say I disagree because I don 't believe in just making profit, I believes in giving back to the community. As we can see some businesses include poor people in their investments and this benefit both rich and poor people.! According to Mc Williams and Siegel, corporate social responsibility is the actions that appear to further some social good, beyond the interests of the firm and that which is required by law.…

    • 1078 Words
    • 4 Pages
    Improved Essays
  • Great Essays

    Some argue that shareholders also own corporate property, but it is clear that in an event of liquidation, equity owners rank last in seniority and have no ownership over the assets of the company; thus it is easy to argue that a corporation is not the property of shareholders. Proponents of this view further claim that the sole purpose of a corporation is to generate wealth, as set out in Dodge v. Ford Motor Co. (1919). Normally, corporate performance is measured on how much one reinvests to grow and how many jobs they create to improve the standard of living of those in the middle class. However, profit growth has become the new measurement norm as companies feel pressure from shareholders to embrace capitalism and free market…

    • 1844 Words
    • 8 Pages
    Great Essays