Essay Example on The Social Responsibility of Companies in the 21st Century

Milton Friedman incorporated the idea of "shareholder approach" in the social responsibility of a company. According to Friedman, the only social responsibility of a business is increasing its profits as much as possible, so long as its operations are free from deception. Typically, ethical considerations are very crucial when conducting business operations in the 21st Century. Being ethical as a company earns you people's trust, and there are high chances of making the company more reputable (Mitchell, Agle & Wood, 855). On the contrary, Friedman argues that a business has no responsibility in providing jobs, keeping the environment clean, and providing a living wage. The main aim of this paper is to provide critical analysis of Friedman's view on the stockholder approach to business ethics and the validity of the approach. In the course of the work, the paper bestows a robust insight into Friedman's view and the reasons why social responsibility has been underdeveloped, according to Joseph Heath.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

Friedman argues that the social responsibility of a business is to increase its profits from different perspectives. First, a business is like an artificial person, and it cannot be unpretentiously socially responsible (Friedman, 55). Social responsibility violates the link between the company and its shareholders. The shareholders have been hired by the managers of the company to increase profits as their primary task. Therefore, the shareholders would be violating the terms of the agreement if they do not increase the profits. Increasing profits is a way of rewarding the stakeholders for risking to comply with the rules of society and ethical customs. Secondly, Friedman claims that the efforts of the "socially responsible" companies may not be effectual, and therefore, there is no reason to uphold the social responsibility belief (Mitchell, Agle & Donna, 855). While Friedman argues that the stockholders carry out operations according to their desires, he admits that for charitable purposes such as hospitals and schools, the managers do not prioritize money profits.

Managers are not qualified to use the stockholder funds for the advancement of the social causes because they are agents of the actual stakeholders (owners), and spending on social interest is not acting according to the owners' best interests. Friedman claims that pursuing social responsibility could be an infringement of the stakeholder's liberty on the corporation (Friedman, 125). Friedman's view can be understood in the sense that the stakeholders own the company, they hire managers to run the company as agents, and in turn, the managers choose to spend the company's resources otherwise. The shareholders make the final decision on how the funds should be spent because they own the business. Therefore, managers who choose to spend the business funds otherwise are regarded as irresponsible by infringing the shareholders' liberty to choose what they want. Additionally, spending the business funds on social interests leads to a conflict of interests between the stockholders and the beneficiaries of social interests.

Joseph Heath, in his article "A market failures approach to business ethics," 2004 defended Friedman's view on profit maximization moral status by citing that the best managerial responsibility is taking advantage of the available specific chances to maximize profits (Heath, 26). However, Heath clarifies the central argument about an extension of corporate managers' obligations beyond profit maximization. Heath's point of view, in this case, is that the ethical business status in profit maximization must be measured by the profit motive's role in the broad economic system. According to Heath, the profit maximization view has been underdeveloped in the sense that "profit is not intrinsically good." Through his reconstruction, Heath claims that "managers have no right to take advantage of market imperfections to increase corporate profits" (p. 34).

According to Heath, Friedman's views need to be expanded in the aspects of commitment to the idea of promoting "Pareto Efficiency." Pareto Efficiency is the implicit morality for survival in the market, and it involves evaluation of the market behavior. Citing that the market is a "staged competition," Heath affirms that "the guiding idea in business ethics should be the principle of Pareto efficiency" (p.173). Additionally, Friedman's views must remain within the rules that deter the business from fraud and deception. Friedman's shareholder primacy is very strong, and therefore, according to Heath, in the instance of a conflict between the principle deterring managers from taking over market power and shareholder interests, then the principle takes charge. Friedman argues that it is full accountability of a firm to ensure that it increases its profits to the most potential maximization as far as businesses are free from the ruse.

Heath justifies the profit motive by arguing that ethical firms do not primarily consider market failure to make profits. The means through which a business earns profits include risk pooling, gains from trade, economies of scale, information transmission, and self-binding. By using the insurance companies as an example, Heath shows how the differences in the insurance markets become counterintuitive. For instance, it is ethically permissible for private insurers to differently charge insurance premiums depending on the level of cost of insuring individuals. For the profit motive to operate how it ought to, the legislations required are supervision, regulation, and enforcement (Milgrom & Roberts, 167). First, businesses must be supervised to ensure that they strictly adhere to the rules of business laws. Secondly, regulation must be made through resolution, where the business is prevented from acting in a way that harms the economy. Lastly, the rules set must be enforced to the businesses to mitigate the poor behaviors exhibited in the market.

Conclusion

In conclusion, Friedman asserts that the social responsibility of commerce is to upsurge its proceeds from different perspectives. He also argues that managers are not qualified to expend the stockholder finances for advancing social causes. Typically, they are agents of the actual stakeholders, and devoting on the social interest is against the owners' best interests. Thus, there is a detailed insight into Friedman's view and the reasons as to why social responsibility has been underdeveloped, according to Joseph Heath. According to Heath (26), the opinion of Friedman on profit maximization moral status is valid, and Heath cited that the best managerial responsibility is utilizing the advantage of the available specific chances to maximize profits. Besides, Friedman's views need to be advanced in the aspects of commitment to the idea of promoting "Pareto Efficiency." Heath validates the turnover drive-by contending that the ethical firms do not ponder sooq catastrophes to attain profits. Therefore, the exposition has propounded requisite scrutiny of Friedman's view on the stockholder approach to business ethics and the cogency of the ploy.

Work Cited

Friedman, Milton. "The Social Responsibility of Business Is to Increase Its Profits." New York Times Magazine, 13 September 1970, p. 122-126

Friedman, Milton. "The Social Responsibility of Business is to Increase Its Profits." In Ethical Theory and Business 8th Edition, ed. by Tom L. Beauchamp, Norman E. Bowie, and Denis G. Arnold (New Jersey: Pearson, 2009.), p. 55

Milgrom, Paul & Roberts, John. Economics, Organization, and Management (Upper Saddle River, N.J.: Prentice-Hall, 1992), 167–97

Mitchell, Ronald., Agle, Bradley, & Wood, Donna "Toward a Theory of Stakeholder Identification and Salience," Academy of Management Review 1997 p. 855