Shareholder Wealth Maximization And Corporate Social Responsibility Theories

In the corporate setting, capitalism plays an important role in the sense that it helps ensure that the decisions made by leaders, such as the CEOs, take into consideration the company’s or stockholders’ interest in gaining profit (Peñaloza & Barnhart, 2011). This implies that it compels business leaders to make decisions that minimize loses while increasing the profitability of the firm. In most occasions, this is accomplished through the application of the utilitarian and Kantian approach to decision-making. However, it’s important to note that the central implication of public capitalism is that of helping foster corporate decision-making based on the broader effort to promote the public good (Peñaloza & Barnhart, 2011).

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.”

Over the years, firms have increasingly been maximising shareholder value. However, Steve Denning, a former director of the World Bank, author of six leadership and management books and columnist for Forbes, disagrees. His article “The Origin of the ‘World’s Dumbest Idea’: Milton Friedman”, was published on June 26, 2013 on Forbes, debates against Friedman’s argument that the social responsibility of corporations is to make money for its shareholders. The main issue here is whether the maximisation of shareholder value as the guiding principle of executives is detrimental to the corporation. Although Denning has exhibited valid points in his argument, his lack of citation, biased view on most arguments and his tone has dampened the credibility

It is a general consensus that from an economic perspective that businesses are expected to benefit shareholders and contribute to society through value maximization. Milton Freidman, however, takes this a step further by asserting that this is the basis of moral behavior for businesses and that they act immorally when they diminish profit by trying to assume other “social responsibilities” instead of letting greater population do that on their own. Although this philosophy would ideally maximize both profit and the amount of money that people could contribute to the social cause of their choice, it does not work as efficiently in a society where there a large portion of society is not in a place to focus on social issues. When this situation is viewed from the perspective of Maslow’s hierarchy of needs, it is evident that until substantial gains are made in the quality of life in the general population, Freidman’s position will not result in social responsibility. Andrew Carnegie unknowingly takes the hierarchy of needs into account when he counters Freidman’s position in the Gospel of Wealth. In his work, Carnegie argues that the proper way to maximize the efficiency of social causes is for elite businessmen make the choices that many others are

The business world is an interesting environment that is often described as heartless and cutthroat. However, while it is described that way, ethics do still apply to the business world. Companies and corporations are expected to adhere to the ethical code that has become engrained in business world. Unfortunately, however, despite the existence of that expectation, some companies and corporations do not always act in an ethical manner. Enron is an example of one of those ethically challenged corporations. In this paper, a brief summary of the Enron scandal will be provided and an analysis utilizing the principles of Catholic Social Teaching (CST) will be conducted. Through the analysis, it will become apparent that Enron’s actions definitely conflicted with several CST principles.

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:

The reading is contained in Alan Ainsworth’s book “The 75 Arguments: An Anthology” that addresses different arguments in various subjects including technology, marriage, race, globalization, economics, among others. The book presents arguments about the relationship between organizations’ responsibilities and the economy. According to the author, activities that aim to enhance the global economy might have negative consequences for both the environment and the society as a whole. Agencies should recognize their responsibilities to support the life of the communities when attending their daily operations. Companies that value the needs to protect the environment tend to receive support from the society while those who defy such responsibilities end up impoverishing their economic growth. In the recent past, globalization, the view of ideas from world perspective has gained popularity across the world. A critical review of the arguments on globalization could offer people and organizations with ideas on the importance of fulfilling their responsibilities while pursuing their economic objectives.

Over the 20th century, numerous conflicts and wars were fought over which economic system is better--capitalism or communism . To summarize, capitalism encourages a ‘free market,’ where competition between businesses drives the market. In communist societies, the government is in control of private property and means of production. These viewpoints held on the economy's days since Cory do not necessarily match up with Catholic Social Doctrine, which disagrees with the moral relativism of Unregulated capitalism. It also disagrees with the religious-suppression characterizing communist Governments, as well as the communist stance on property as something that should be collective. This suggests Catholic Social Teaching is unique in the context

Nevertheless, Friedman pointed out that the profits has taken the firms in to the hand of business intellectuals by which Friedman recommend that the financial system by which the organisation run its business is in the restricted responsibility protection which makes the organisations to privatise their profits (Friedman 1970 pp. 177-184). Friedman also suggested that according to him the shareholder theory in terms of socially responsible can only increase the profit. But on the other hand shareholder theory of Edward Freeman completely support the theory of shareholder towards its role to be socially responsible in the society and maximising the profits for the benefits of shareholders within the firms and society as well (Freeman 2008 pp. 162-165).

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

Milton Friedman in his 1970 article titled” The social responsibility of business is to increase its profits”, argues that the main purpose of the corporation is to maximize profit for shareholders (or stockholders) as long as it is in the confines of the law. He is of the view that a business is not an individual and has no moral responsibility, therefore only the employees have a moral responsibility for the actions of the firm. The managers are viewed as agents of stockholders and have a moral obligation to manage the firm in the interest of the stockholders. It is seen as illegitimate if the shareholder money is used to contribute to charity, however if public financing is needed it is the government’s responsibly to raise such through taxation

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.