The Social Responsibility of Business:
The role of business in the society became a major aspect across business after Milton Freedman wrote the most provocative article in 1970. As an economist, Freedman stated that the main purpose of businesses is to generate profits for its shareholders. Furthermore, he argued that companies with responsible attitudes were likely to encounter increased binding constraints unlike those that lacked these attitudes, resulting in them becoming less competitive. As a hotly debated topic, Freedman's article has both positive and negative points regarding the societal role of businesses.
Points of Agreement in Freedman's Article: Some of the positive points from the article on the social responsibility of business that I agree with include "¦.
Obligation to Generate Satisfying Returns: One of the main reasons, though not the only reason, for the existence of businesses is to generate satisfying returns to shareholders since these people have provided the risk capital that has enabled the business to exist (Lewis, 2010). While the concept may fail in certain instances, profit maximization is the most appropriate and available rule in the marketplace. As emphasized in the article, Freedman is thinking only on the basis of maximizing profits for the investors. This principle or concept is acceptable as long as the interests of customers are considered in attempts to maximize profits for the investors.
Acting in the Shareholders' Best
Company Q is a small local grocery store chain who has made poor decisions when it comes to social responsibility. Company Q’s business is suffering because the owners’ do not know the heart of running a business, Social responsibility. When opening a business it is not all about the money. Sure it is nice to think about growth and reaping the benefits of a bigger bank account, but the first thing that is important in business is the consumers. Who is buying what you are selling? What will make consumers buy more, comeback, or tell friends? Businesses flourish around consumers. So if it is money you are after, then consumers are who you need and want. So in business in order for Company Q to get what they want and need, they will need to give the consumer what they want and need, social responsibility. Give back, it has always been said “It is better to give than to receive.” After careful review of Company Q's business actions, this company lacks social responsibility in many areas.
Friedman, M. (1970, September 13). The social responsibility of business is to enhance its profits. The New York Times Magazine.
In Friedman’s article, The Social Responsibility of Business is to Increase Its Profit, he gives two arguments for what, if any, social responsibilities a business has and why they have it. In his arguments, he presents a businessman in charge of running the business on behalf of the owner. The first point he raises in dictating what responsibilities the businessman should fulfill involves defining the businessman’s purpose. He was hired as an agent of the shareholders, the owners of the business, etc. to make the business profitable. Barring some eleemosynary functions, as Friedman states, such as hospitals and schools, the general purpose of a business is to make money, therefore, the responsibilities of an agent of the business would be to increase said profits. To do otherwise would be to fulfill a purpose other than the one he was hired for and betray the owners.
Companies today are heavily influenced by the demands of customers and stakeholders. Corporate social responsibility (CSR) refers to the social and environmental responsibility policies and practices developed by an organization to increase its positive influence and reduce its negative activity towards society (Parks, 2008). The business approach and corporate philosophy of an organization is easily altered due to economic pressures, technological improvement and stakeholder needs and demands. "Going green" or being eco-friendly is one such demand. Environmental and sustainability concerns originate most often from governments, consumer activists, and the general public (Schlosser, 2008). Thus, organizations must implement sustainability into daily practices. In addition, sustainability alters the nature of competition and drives companies to think differently about products, processes, and technologies (Parks, 2008).
The notion of ethics deals with people’s behaviors within a company. Social responsibility involves a company’s moral obligations and the manner in which the organization makes its decisions. Although ethics and social responsibility are similar on a conceptual basis, each has its own unique characteristics that express their differences and its independence of the other. Ethics and social responsibility have to be present and coincide with one another for a business to be ethically sound.
The strengths, limitations and challenges of ethical and socially responsible business practice within a business case of my choice – ALDI Supermarket.
Overall Friedman feels that socialism has had a damaging effect businesses and that the only social responsibility was to increase profits every year (Friedman, 1970, p. 5). Friedman percived business owners or executives as only caring about themselves and no one else which brings Friedman thinks that they should not have any part in enaging in social responability of there compaines. Friedman states that some corporate executives slecte them self on the bioard spend the money how ever they but not in the interest of social responiabilty (Friedman, 1970, p. 2). Friedman feels, “there is only one social responsibility of businesses, that is 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, engages in open and free competition without deception or fraud” (Friedman, 1970, p. 5). In 1970 Friedman recommended the word "business ethics" which took the place of "social responsibility" (Friedman, 1970). When business ethics is put in place in businesses it will show that compaines have the best interest of all pasrites invloved. Basiclly what this means is that every body in the compainy would be working in aethical in eviroonement and that would support advancement and enhancements. Friedman thinks if these process are put in in companies this would not be
Milton Friedman believes the idea of businesses having some sort of responsibility to society is a baseless notion, and describes discussions encouraging it as lacking meaningful analysis or precision. “What does it mean to say that ‘business’ has responsibilities? Only people can have responsibilities” (Friedman, p.218)1. Corporations are led by executives which are chosen by the owners
Continually in today’s working environment businesses and corporations stay finding new ways and methods to align their business goals and values with the profitability of those who they serve or work for (stockholders, other agents). The goal of companies in the business sector is still maximizing profit, but questions now arise at to what extent is that the only goal of the company. Furthermore, we see now more than any time period in history, companies taking on more of a social responsibility than before, which effects their decision making and business plan. The argument therefore remains, is increasing profits the only social responsibility of business?
In his paper, The Social Responsibilities of Business is to Increase its Profits (Friedman, 1970), Milton Friedman discusses social responsibility and what he feels it means in the business arena. He goes on to say “A corporation is an artificial person” (Friedman, 1970) and since this is not a real person, cannot have any responsibilities. While a corporation or business has a leader or board of directors, Friedman states these individuals cannot make decisions on social responsibility without eating into the profits of the company, the employee’s wages, or even the price that the customer has to pay for the item.
Ethics and social responsibility are important areas within Chipotle Mexican Grill’s business. Both areas have an interactive relationship that plays a role in building profitable businesses as well as a well-rounded community. Ethics refer to sets of beliefs about right and wrong; and business ethics involve the application of these issues in the workplace. The universal ethical standards, which involve trustworthiness, respect, responsibility, fairness, caring, and citizenship, are standards that apply to all people and should definitely be held high within the workplace. Social Responsibility is the obligation of a business to contribute to society. Chipotle’s social responsibility affects
I do not agree with the following quote by Milton Friedman. Engaging in activities that are designed to only increase profits for a company would open doors to complications and mistakes, which is caused by the lack of customer satisfaction. The social responsibility of any business should be to take care of its customers, instead of just focusing on the amount of profit the company is making. If a company decides to just focus on making a profit, it will lose focus on providing customers with products and services that will improve their standard of living.
When trust is damaged employee performance declines, employee loyalty declines, employee theft rises and the relationship a company had with its clients ultimately fails.
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.
The responsibility of a business goes beyond just turning a profit, they also have an obligation to society. The stakeholders; consumers, employees, the community and the environment, all have a variety of needs that should be met by the company. These needs can include things such as safer more affordable products for the consumer, fair wages and good working conditions for the employee, or environmentally safe production practices that cut down on pollution for the community. Meeting these needs is known as Corporate Social Responsibility (CSR) and can have a profound impact on the company. Businesses, big and small, have an obligation to society to provide quality services while protecting the integrity of the environment and community surrounding them.