Social Responsibility of Corporations and Milton Friedman Doctrine
The topic of social responsibility is something that has received worldwide attention from all the business people. According to entrepreneurs, they pronounce that a business’ only goal is to make profits, but also it offers desirable social outcomes. The business provides a social morality and it is concerned with its duties of providing jobs, curbing discrimination, preventing pollution and any other activity that benefits the modern reformers (Friedman, 173). However, such business would carry out such duties if they are run seriously because many of the enterprises in our society are speaking about socialism that is unadulterated and pure. According to Milton Friedman, entrepreneurs who preach on pure socialism are ignorant individuals who have prevented the development of a free society over the years.
As Friedman suggests, the goal of many corporations is to utilize their social responsibility to maximize the returns. Investigations from many businesses are that their social responsibilities have been witnessed to be loose and have insufficient rigour. It is not only the people in the society who have responsibilities but also the business. Friedman suggests that a corporation is similar to an artificial individual and through this, it can have synthetic roles (Friedman, 174). However, it is not easy to suggest that the business collectively has responsibilities due to the vague sense. The concept of business social responsibility requires an individual to explore its meaning from the perspective of every person. The corporate executives and individual proprietors are termed as the business individuals and they are liable in clarifying the concept of social responsibility. The corporate executive from private property in a free enterprise is a staff of the business owners and they are responsible to their employers (Friedman, 176). Their role is to run the business through a system that will generate a lot of returns as they adhere to the rules of the society which are represented in ethical customs and laws. On the other hand, employers in corporations like schools or hospitals have a focus on eleemosynary goals. At this moment, the employers will have an objective not linked to making money profits, but to execute different services.
As Friedman claims, the corporate executives are in the capacity of business people and they have social responsibilities (Friedman, 175). It implies that the corporate executives have to do work or perform duties in a way that it does not benefit the interest of their bosses. This implies that the corporate executives are not expected to raise a product’s price so that they are involved in the social goal of curbing inflation. Despite the increase in price, it will serve to benefit the business. In another scenario, the corporate executives are not expected to do work for the benefit of the enterprise such that they recruit less qualified workers as a means of assisting in eradicating poverty as a social objective. Through such ways, the corporate executives are making expenditures of other people money to gain social interest. The actions of the corporate executives should not in any way use social responsibility to increase the prices for customers or minimize stockholder’s returns or reduce the salary of employees as such actions will be making expenditures of the respective stakeholders (Friedman, 177). By doing that, the corporate executives are imposing taxes and then stipulating how the money will be used on the other end. The taxes develop political queries based on consequences and principle. The government has the function of imposing taxes and deciding on the expenditures. The imposition of taxes is done through parliamentary, judicial and constitutional provisions which meet the desires and preferences of the citizens. Due to this, the entrepreneurs have to be the jurist, executive and legislator. The business people have to know who they will tax, the reason for taxing, how much to tax and how the money will be spent. All the listed activities have to adhere to the social responsibilities of fighting poverty, enhance environmental conservation and prevent inflation among others.
Edward Freeman developed the stakeholder theory of Modern Corporation whereby he strengthened the ideology of managerial capitalism by suggesting that the managers have a fiduciary duty as they relate with the stakeholders. Freeman suggests that the challenges of moral, political, economic and legal to the existing theory of corporations has a link of contracts to the owners involved in production factors as well as the customers (Freeman, 39). This implies that the various groups of stakeholders which comprise of employees, the community, suppliers, customers, management and stockholders have a role in ensuring the future direction of the firm based on their respective stake. The argument presented buy Freeman dwells on how the business should be managed with regards to whose expense and benefit.
There is a legal argument on managerial capitalism suggests that the management will strongly pursue the stockholder’s interests after running the business. The management will be involved in undertaking business transactions with the customers and suppliers through an unconstrained strategy. The law of corporations claims that the directors have a trustee to the investors such that they have to run the business according to their interest (Freeman, 40). Nevertheless, the law has changed and the various stakeholders have to be considered in any firm despite being subordinates to the investors. The changes in the legal system have to give responsibilities to the various stakeholders such that the business should be managed according to their interest and not only for the stockholders.
On the other hand, managerial capitalism presents the economic argument that the firm is focused on boosting the stockholders’ interests. Through managerial capitalism, the corporations will make the greatest goods for the benefit of the public and so the government has no rights to interfere (Freeman, 42). Nevertheless, every business will experience monopoly power, moral hazards and externalities which will deal with the managerial capitalism. The problem of free-rider infuses the idea of public goods and no individual is liable to make contributions for nonpolluting or clean-up since the gain from the activities of a company are very small. As Freeman proclaims many corporations have utilized such ideologies and due to the industrial revolution, the companies have made all their actions to externalize the expenses while they keep all their benefits. The managerial capitalism has experienced high external control due to monopoly, moral hazards and externalities which makes the management to work according to the stockholder’s interests.
The stakeholders in a modern corporation can affect benefits or harms as their duties are reciprocal. The point brought forward by Freeman is that the owners of a corporation have stocks or financial stakes from which they expect returns. The investors can contribute money to the firm directly or present a claim that is made through a sequence of accepted moral exchanges. Different owners will have different stakes which are through moral preferences, desires for money or the types of company. Therefore, the firms will affect the livelihood of the stockholders and their ability to cater for their needs and those of their families will greatly depend on the bonds or stocks in the firm (Freeman, 43). For the employees, they have different skills which they input at work and in return they expect benefits, wages, security and also meaningful work. The firm has to cater to the needs and wants of their loyal employees. The role of the employees is to follow managerial instructions, speak positively about the firm and also be responsible while serving the communities. With the observance of such values and policies, there is a compelling and productive relationship between the company and the employees.
The suppliers are responsible for providing the raw materials that will determine the quality of manufactured the product and its price. By treating the suppliers as valuable stakeholders, the company will increase its production and profits. For the customers, they are involved in purchasing the products of the firm to gain benefits are they offer revenue to the corporation. Customers are crucial stakeholders who enhance the lifeblood of the enterprise by providing capital. According to Freeman, when a corporation focuses on the needs of the customers, the management will be at a position of focusing on the necessities of the owners and suppliers.
Nevertheless, the excellent customer service will also be evident in the communities. The stakeholder theory also claims that the firm has the responsibility of giving to the society in the form of the provision of local services like housing, schools, hospitals and food (Freeman, 45). In such a way the community will obtain social and economic contributions which emanate from the tax base. Also, the firm has to be conservative in that it does not result in unreasonable hazards like toxic wastes and environmental pollution.
From the review of the stakeholder theory by Freeman and the argument by Friedman that maximization of profits is the main goal of the social responsibility of any business, I would say that the theory of stakeholder is very accurate and offers a better understanding. The stakeholder theory suggests that the firm is responsible for benefiting every stakeholder as they have a specific role in the business. Claims by Friedman have only focused on how corporations seek to make profits but not discussed how each of the stakeholders could benefit from the corporation’s social responsibility.