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

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