Argument For And Against Profit And Wealth Maximization

What is ethically responsible management? How can a corporation, given its economic mission, be managed with appropriate attention to ethical concerns? These are central questions in the field of business ethics. There are two approaches to answering such questions. The first one is Milton Friedman’s shareholder theory of management and the second one is Edwards Freeman’s “Stakeholder” theory of management, two different views about the purpose and aims of a business.

What is the corporation’s social responsibility? Many might say the main idea is that a corporation must go further than carrying out their basic function of purely making profits. A corporation must create wealth in ways that avoid under minding society, and instead enrich the society it operates in. The term “corporate social responsibility” has been defined in numerous ways; from the constricted economic perception of increasing stockholder wealth (Friedman, 1962), to economic, legal, ethical and flexible strands of accountability (Carroll, 1979) to good corporate social responsibility to citizens (Hemphill, 2004). These disparities differ from fundamental assumptions of what corporate social responsibility involves. However, one has to keep in mind that the CEO of any corporation is legally the agent of the stockholder, and must focus on what the shareholder wants. More often than not, the shareholder would prefer profits for individual gain rather than spending their money on social projects. Stakeholder groups have increased their influence to enact their agendas. Using profits to fund schools and partake in fixing the environment are all great and wonderful things, but this social tax of using profits for social ends projects goes entirely against democracy. Or does it? Who should truly be held responsible for stakeholders around the corporation? Is it the responsibility of the government, philanthropists, employees, its

On the other side, as the legal personality of the corporations evolved in the 1800s, enterprises were no longer responsible for serving the public interest. Consequently, any social welfare was symbolic and procured from the economic function of organizations (Banerjee, 2008). Furthermore, it seems that corporations are using CSR strategies as a window to present favorable images and obtain economic benefits. Historically the relationship between revenues and investment in CSR programs is a controversial issue. Furthermore, the power of the economic CSR rhetoric lies in the ability to validate particular ideologies to consolidate the power of larger corporations (Banerjee,

Can business thrive by profit alone? Barry (2000) described Milton Friedman’s short essay, in the 1970’s, as extremely controversial, in which he denied that corporate executives had any moral duty to relax the conditions of profit maximization on behalf of the wider interests of society. This example of the “bottom line” of business has been demonstrated within the past couple of decades by publicly criticized companies, for fraudulent activities, such as, Enron, WorldCom, and HealthSouth along with many others. These company executives were willing to sacrifice the vast majority and greater good of society for profit gains. This mindset left many of loyal investors, consumers and employees without a sound stabilized future. There are also many businesses that produce a high yield on their investments;

We will look at the Enron Corporation and discuss its application of Corporate Social Responsibility (CSR) or in actuality its irresponsible behavior as related to social responsibility. We will revisit what CSR is and discuss Enron’s philosophy regarding its use and function within the corporation. We will discuss the consequences of Enron’s irresponsible behavior and the far reaching effects it had on society.

Breaking down an overview of Lockheed Martin’s organization leads to Terris’ elaborate plan to gain a general overview of the evolution of business ethics and revealing a balance between profits and stakeholder concerns. Responsibilities of top leadership involve several different form of involvement. These leaders have to be aware, decisive, honest, focused and inspiring. A top leader is usually referred to as a chief executive officer, CEO. CEOs have helped throughout the history of business ethics by seeking unfair advantages through immoral arrangements and creating new ways of business. With business changing occurring, welfare capitalism becomes a major aspect in the nineteenth and twentieth centuries. As a result of issues with welfare capitalism, corporate social responsibility has made its appearance in the twentieth century. Programs of corporate social responsibility now form many of corporate America’s largest advertising campaigns, especially in industries that have been vulnerable to public criticism for their social impact (Terris, 2005, p.42).

Corporate Social Responsibility (CSR) is something that affects all companies and should be an active factor in the company’s decision making. It is something all corporations need to care about. CSR is when business’ or corporations take part in an initiative or campaign for a cause that will benefit society and/or in some way make the world a better place (Taylor, 2015). Initially, Corporate Social Responsibility started to take shape around the 1950’s, but some say that it dates all the way back to the 1800s, the idea of CSR was seen (Carroll, 2007). One may think that because it is dated so long ago, it doesn’t have an important impact today nevertheless, it is proven that Corporate Social Responsibility is a pathway for entities to self benefit as they are in the process of benefitting society.

Does the maximaization of shareholder value reward socially destructive actions by corporations?Certainly not.A company is not an instrument of shareholders, but a coalition between various resource suppliers, with the intention of increasing their common wealth and hence is contradictory to Mr Al Dunlaps view of share holder primancy.

To spend the firm’s money on matters of social responsibility, such as “reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law” (Friedman) equates to spending the shareholders’ money, as it reduces the return on their investment. Thus, they make less of a profit than they maximally could. He argues that managers must prioritise their fiduciary obligations to shareholders – such as turning over a profit on their investment – over altruistic endeavors. Thus, he claims that failure to obey shareholders’ wishes by not maximises profits is to behave

Concluding on his tradition view on CSR, in today’s world an organization cannot only focus on maximization of profit and ignore the external environment. We cannot ignore the fact that some companies pollute our environment and that they cannot ignore the society they are operating and always make profit. They cannot just concentrate only on wealth maximization and degrade the social

The benefit to business of good Corporate Social Responsibility is difficult to quantify as it varies depending on the nature of the enterprise. Some scholars believe that there is a business justification for CSR. That is, what is good for the environment and society will be good for company profitability. And studies have shown a slightly positive correlation between CSR and financial gain (Steiner and Steiner, 2006). However, as Freidmanism claims, the first responsibility of business is to make enough profit to cover the costs for the future. If this social responsibility is not met, no other responsibilities can be (Hargreaves, 2006). Therefore it is critical that CSR activities are included in strategy formulation and that the level of resources devoted to CSR is determined like any other strategy – through cost/benefit analysis. Corporations will not throw money away…they need to see it

Friedman felt that Governments should run social programs, not corporations. In the free enterprise system managers are responsible only to stockholders. Spending money on social projects wrongly appropriates money that belongs to the company. It also robs consumers, who must pay higher prices for products. Friedman argued that this is “taxation without representation.” Corporate Social responsibility threatens political freedom because it requires that companies perform political functions, gives executives political power, and opens business to evaluation by political criteria. Friedman also argued that corporations should not take on political and social projects outside of their economic expertise. Friedman Idea argues that the only social responsibility companies have are to maximize profits while staying within the law. According to the case study Friedman’s ideas seems to characterize the attitude of Jack Welch while he was in Charge at GE. Welch concentrated on playing the competitive game, building dominant businesses, and making money. Although GE did give money to different causes and charities, never emphasized any social responsibility, and focused the company on only increasing the shareholders return on investment. Welch agreed with Friedman’s view that managers should give primacy to the interests of shareholders.

Proponents of CSR would suggest a number of reasons why self interested corporations, seeking to solely to maximize profits are unable to advance the interests of society as a whole:

There are several problems that can we seen in business ethics. “Discussions of the role of the corporation in society and the very purpose of a corporation as a social institution are examples. It is not disputed that the purpose of a for-profit corporation is to make a profit for stockholder, but there has been an intense debate about whether maximizing stockholder profits is the sole legitimate purpose of corporations” as Milton Friedman and other have argued and whether beneficent corporate conduct is justifiable. This question is normative, but there is also the question of moral psychology raised by Smith: “Does beneficence have any place in the world of business?” An example is found in public utilities’ program to help customers pay for electricity, gas, oil, phone service, and the like. This attitude not only won’t increase the company profits but reduce. In fact, this is a corporate form of charity. The money is taken directly

Most companies are profit oriented. Companies survive and live on profit. Even governmental institutions, NGO's and NPO's are profit oriented, what they do with profit is different though. Saying this means that companies seek always to be at a position where profit is maximized. As we know by now this happens when MC=MR but this is an always changing point as supply and demand are dynamic, effectively meaning that if firms get it right once they can't just do the same eternally, they still need to adapt to every market factor as a new change is a new reality all together that needs to be studied and addressed. All