Business Ethics: Organizational Governance and CSR

Milton Friedman’s shareholder theory of management says that the purpose of a business is to make money for the owner or the stockholders of the business. Friedman says that there is only one social responsibility for the business: to use its resources in order to increase

In this essay we are taking a look at the famous Milton Friedman's essay "The Social Responsibility of Business is to Increase Profit ". The following paper is an attempt to critically evaluate the article in consideration of Freeman Stakeholder Theory.

What Friedman implies is that shareholders should only be concerned with maximizing profits and not be obligated to be “socially responsible.” In that case, the manager would only have one priority, to maximize profits. However, what if that manager determined that social endeavors is the best option to maximize profits? This would make the corporation socially responsible while still maintaining maximum profits. The argument presented by Friedman in this case is that while the manager is performing as expected by maximizing profits, this type of “social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.”

Corporate Social Responsibility (CSR) is the concept of businesses considering economic, social and environmental benefits for all their stakeholders. Friedman’s position on CSR appears very negative, his argument is the only social responsibility businesses have is to exploit their capabilities to increase profits, therefore implying businesses solely aim to increase profits while disregarding social and environmental factors (Friedman, 1970). I disagree with this view because I believe businesses are required to undertake social responsibilities, such as recycling and using fair trade ingredients, to provide customer satisfaction and create a good public image. If customers were not satisfied with the products or services, they purchase or thought they were buying from an unethical company this could decrease demand and profits. Therefore, CSR is important to businesses because businesses need customers to survive and a method of retaining or gaining customers is to be socially responsible.

The ethical issues presented in this case are the different views that each individual has on how the idea of corporate social responsibility (CSR). This dispute is between Mr. Milton Friedman, John Mackey, and T.J. Rodgers; all of which has a different outlook on CSR. The definition of CSR refers to the responsibilities that business has to the society in which it operates and to those actions that a business can be held accountable. Most philosophers have come up with three different types of responsibilities that corporations can be held accountable for. The first and most important of the three is a corporation’s duty to not cause harm. If a corporation can

Milton Friedman argues that persons may choose to undertake social responsibilities to their communities, churches, or nations, and devote their own incomes to causes that they deem morally worthy. But, he adds, if corporate executives attempt to take such social responsibilities or to direct the corporation’s profits to such personal causes, without approval from the shareholders, then:

Some perspectives could be consent, but some views could not be agreed. There will be some argued about the behaviour of the directors cannot in any way to increase profits and the enterprises or corporations should engage in social responsibility activities, because it can show that they are at least have an indirect positive impact on organizational performance. Friedman advocates for a direct form of capitalism and opposes any activity that could distort of the economic freedom (Hammond, 2003). According to Milton Friedman, through the corporate social responsibility activities, the distorting of economic freedom for shareholders because the shareholders could not have willed manages on their money spending. Hence, Milton Friedman also argued that corporations should pay attention to the activities that have a causal relationship to the company profits, effectively eliminate the charity activity that does not directly generate revenue (Friedman, 1962). The corporates are with the slogan “taken from the society is used in society” when carry through the social responsibilities work. However, the ultimate beneficiaries are still the corporates and

Milton Friedman wrote in his famous 1970’s article in The New York Times Magazine, that “the one and only social responsibility of business, is to increase profits for shareholders.” Milton Friedman's view on business responsibility accentuates the importance of maximizing firm's value. He pointed that the “there is one and only one social responsibility of business –to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engaged in open and free completion without deception or fraud’’ and by taking on the burden of social cost, the business becomes less efficient (Milton Friedman, 1962).

Milton Friedman was an American economist, statistician and writer, who had a massive impact on the research agenda of the economics profession. His famous words “the only responsibility of business is to increase its profits” (Friedman, Milton. 1970) led to many controversial debates on whether businesses should have ethics or if profit should be their main goal. Corporate social responsibility has many definitions, as its interpretation is quite loose, so I have chosen one that relates the most to this essay, given by the World Business Council for Sustainable Development, in 2000: “Corporate social

The idea that a corporate executive has a social responsibility in his capacity as businessman is contradictory to the goals of the firm. The concept of social responsibility implies that executives are to act in some way that is not in the interest of his employers. Friedman (1970) uses the examples of refraining from increasing the price of the product in order to contribute to the social objective of preventing inflation, even though a price increase would be in the best interests of the corporation; making expenditures on reducing pollution beyond the amount that is in the best interests of the corporation or that is required by law in order to contribute to the social objective of improving the environment; and, at the expense of corporate profits, hiring the chronically

Friedman argues that the only responsibility a business has to society is to act in its own self-interest to create revenue and remain successful in the economic system (158).Created to make a profit by providing a task or service, a business must “use its resources and engage in activities designed to increase its profits” (Friedman 164). A business could use any tactic to gain a profit as long as they remained “within the rules of the game” (Friedman 164). The rules implied that no deception or fraud could take place while the corporation obtained their profit.

Milton Friedman once famously said, “The business of Business is Business”. If the great man have to rethink his ideology in today’s context he might have to rephrase the above statement, and it is quite likely to be;“The business of business is not Just Business “. In modern times Creating a great company and building a better world are not conflicting goals – they are both essential ingredients for long-term success of the organization in particular and society in general .Corporate Social Responsibility or CSR is no longer a luxury for the corporate world, it’s a necessity which they have to embrace for their own and society’s long term future

It has been debated for businesses, whether to invest in CSR activities. Researchers who are in favour of CSR argue for the benefits of involving in corporate social activities compared to just setting policies that will maximize only the value of the firm or its profits. Tobias, (2011) argued that companies that are involved in CSR are more profitable than their peers who are not socially responsible to their stakeholders. The critics argue that CSR is an activity that takes away the attention of managers from the objective of the organization. Managers are stewards of organization and their task is to invest the assets received from creditors and stockholders to increase profits and dividends. However, when they turn their attention to activities that are in the sole responsibility of the government, it will distract operational activities. Friedman (1970) argued in his article “The social responsibility of business is to increase its profit", artificial legal body is what companies are referred to by law. As an artificial person if they have any responsibilities to the society then it should be artificial social responsibility” this implies that corporations’ responsibility is not to the society but it is the work of the

ITC Ltd has worked exremly hard to start several procedures that have led to compliance of the standards of social responsibility. ITC’s dealings within the tobacco industry have contributed to the increase in company revenues and the company has worked towards following the triple bottom line and giving back to society. Most, businesses pay little attention to their social responsibilities and make it part of their overall strategy, instead they concentrate more on financial benefits from the sales of products. Consequently, managing business in a socially responsive manner contributes to the best combination of business success and societal acceptance, trust and loyalty. Giving back to the community in ways that benefits only society such as planting trees to curb pollution and help the environment or using biodegradable materials in packaging can reap financial benefits to a company by building loyalty among the community. The notion of business ethics and corporate social responsibility is becoming a defining concept in all industries worldwide. ITC believes in the Triple Bottom Line philosophy where the performance and perception of a corporation should not be judged only on the basis of its financial statements or revenues, but its environmental and social performance as well. ITC is one of the only companies in the world to be carbon positive, water positive, and conduct solid waste recycling. ITC provides water to areas where water is very

In the article “Doing well by doing good”, the words ‘business” and “ethics” has been pointed out that they can’t come together. Companies wondered where do ethics go and it has been widely wrath despite being taught in school. Ethics has been the custom yet uncertain. There are protesters in Washington, DC who were criticizing the immorality of a company including the IMF. Most people reacted that companies shouldn’t be in the business ethics at one’s convenience but should be concerned of their social responsibilities, morals and environment. The leader of market economics, Milton Friedman, stated that to increase the profits, the company has to use its resources and has to engage in activities.