In this report, I am going to discuss the
argument put forward by Milton Friedman. I am also going to discuss the
alternatives theories that can be used in relation to the points that Milton
Friedman made. I’ll also critically evaluate a statement I’ve read whilst using
Milton Friedman stated some good points for
his own view on Corporate Social Responsibility, but not some people did agree with
his viewpoint. However, there are some cons to his points on the argument of
Corporate Social Responsibility, also it’s had come across that Milton Friedman
was completely wrong in his argument and it was a failed theory. I shall delve
more into that.
Milton Friedman was an
American economist known for having such a strong belief in free market capitalism. He was also known for his many free-market theories, most notably his theory
about Corporate Social Responsibility (CSR).
The definition of Corporate social
responsibility is the company’s assessment and their responsibility on their
environmental and social status. Corporate social responsibility is a concept
that has various definitions and regulations. Different companies and countries
understand and carry out corporate social responsibility differently.
Corporate Social Responsibility is a concept
that tackles many topics such as corporate governance, human rights, the
effects on the environment, health and safety and other topics. As a whole,
Corporate Social Responsibility’s goal is to
make a change towards sustainability.
Friedman said about Corporate Social Responsibility is that he thought
‘Corporate social responsibility is a fundamentally subversive doctrine’ and he
also states that ‘there is 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’.
One definition of CSR and its relation to
profit is ‘taking into account the
interests and the concerns of the community rather than its shareholders’. This definition comes from
(Sloman et al, 2010);.
In relation to the Milton Friedman statement
about Corporate Social Responsibility, is the possibility that the directors of
the company can do anything in their power to make sure that profits that are
generated can be increased. However even though Milton Friedman stated that
profits can be increased as long it stays within, does this indicate that
directors have a ‘passage’ so to say to go by any means to increase profit? Well, that is very debatable.
Part B- Describe and explain the basis for the
argument put forward by Milton Friedman.
After looking at an abstract of Milton
Friedman’s book on Corporate Social Responsibility and various pieces of
evidence relating to it, Milton does bring up some key points for his
arguments. Milton Friedman argues against corporate social responsibility. Milton
says in his book that ourselves as humans only have responsibilities. Milton
also points out that businesses don’t have no responsibilities and firms are
‘artificial’ hence they’re going to have artificial responsibilities. To get a clear view of the doctrine of
corporate social responsibility is to see
what it implies for Milton then further
As I delve further
into Milton’s Friedman article, he states that the people responsible
are in fact businessmen, for example,
corporate executives. In terms of social responsibility, it’s mostly to do with corporations, so it’ll
only be right to talk of corporate executives, Milton Friedman states.
An executive director
also has a responsibility to his employers. The role of a corporate executive
is to ensure that the business is running smoothly, money is being generated at
a profitable rate whilst still keeping in line with
simple society laws. However, the objective won’t always be the same as
different employers have different objectives to be met.
A point Friedman does make in relation to
corporate executives and corporate social responsibility is that a corporate
executive is still a person. They may have personal responsibilities to attend
to, so to say he could feel motivated by his job to donate some of his earnings
to several matters that are deemed important to them. In some way, we could categorise that as an act of social
responsibility. However, it is argued, that even if we class it as a social
responsibility, it’s a social responsibility of that particular individual not
of the business.
Milton Friedman also touches on the point
that does a corporate e if a corporate executive does not raise the price of a
product to prevent inflation from occurring, even though if it were to
increase, it would benefit the business as a whole. Also, or by making
expenditures by lowering the pollution levels that would suit the interest of
the corporation or even by law to meet the objective of improving and
maintaining the environment. In relation to the corporation’s profits, he has
employed severely poor unemployed people instead of skilled workmen in order to
reduce poverty as a whole.
Milton explained that for
these cases that the corporate executive is spending other people money instead
of their own for social interest.
relation to what Friedman said about Corporate Social Responsibility, he argued
the fact that even if businessmen had the backing of the shareholder, if they
weren’t pursuing economic motives, it could damage the social objective that
the firm is trying to help in the first place.
Milton also stated,
of course, there are going to incur social costs, so in hindsight, the
business’s efficiency will be lower than expected. So, it could be possible
that the price will rise to cover the increased costs, or invest in new
ventures and researched is halted because of it.
Part C- Describe and explain the alternative
theories that could be used in relation to the points made by Milton Friedman.
There are many theories that can be used in
relation that what Milton Friedman said. One of these theories is called the
‘Ackerman model’. The Ackerman model (1976) is all about internal policy
objectives and how it relates to corporate social responsibility. Ackerman
stated that there are six strategies in
the adoption of Corporate Social Responsibility. These strategies are rejection
strategy, adversary strategy, resistance strategy, compliance strategy,
accommodation strategy and proactive strategy.
Ackerman also stated that his model was made
up of three phases. The first phase is that the managers of the company
noticing the social problem, the second phase of this model are having a very thorough study to the problem
at hand and figuring out a positive outcome to it via experts. The last stage
is to carry out the solution to effect.
One other model was the Carroll model (1991).
Carroll’s pyramid model focuses on how and why firms should always meet their
social objectives. The key factors that Carroll’s model is comprised of are first,
profit is the main goal, secondly, the business must not fall out of line with
the rules and regulations. Also, the business must reach its ethical objectives
before even considering any philanthropic ventures.
corporate social responsibilities into four tiers and called it a ‘pyramid of
responsibilities’. These four responsibilities are philanthropic, economic,
legal and ethical. Carroll also stated that we should not break this four-tier pyramid down and view the responsibilities
singularly but view it as a whole.
The economic responsibilities are at the base
of the pyramid and for this, you have to
generate profits, lower the risk of cost and ensure sales are at a high rate.
In addition to all of this, you have to also make strategic choices that’ll
benefit the company.
In the pyramid above economic
responsibilities is legal responsibilities, with this particular
responsibility, companies must abide with the rules and regulations set for
them, as these rules and regulations indicate on how society views what is
acceptable and unacceptable.
Above legal responsibilities are ethical
responsibilities, with this responsibility society expects you to implement
this in your daily life. These responsibilities include carrying out ethical
leadership, staying away from dodgy/illegal practices and also function above
or beyond the standard of the law.
The focal point of the pyramid
is philanthropic responsibilities. This responsibility includes being a good
citizen and improving society’s life. For example, helping the community,
giving back to the community, volunteering for activities in your community are
examples of this.
A definition of corporate citizenship is the
social responsibility of businesses and how they meet legal responsibilities,
ethical responsibilities, and economic responsibilities. One other model is
the ‘Corporate citizenship model’.
As for the corporate citizenship model, there are four requirements to be a
corporate citizen. The corporate firm’s behaviour must be at a good standard, they also
had to be performing consistently and at
a level that is required of them. In addition to that, economically, they must
be performing at a high level and that level should not drop. Lastly, their ethical actions should be at a
required level to be satisfiable.
Part D- Critically evaluate the statement made by
considering the alternative theories connected with the purpose of a business
and the concept of profitability and corporate social responsibility.
Carroll’s (1991) model is a good example of
this. A stakeholder model in the format of Carroll’s pyramid model is affected by various responsibilities. For
instance, if the business is not generating enough profit then as a result of
this, the economic responsibilities will affect the employers and its owners.
The legal responsibilities are crucial in
relation to the owners, but it also has a vital relation to the employees and
stakeholders also. As for the ethical responsibilities, they affect the
stakeholders as well as consumers and employers. The main point of the pyramid
is the philanthropic responsibilities, even though this type of
responsibilities focuses on the community, helping the community by any ways
and means you can, it also affects the employees.
The reason why it would affect
the employees because the way the company carries out their philanthropic
responsibilities, it would affect the morale of the employees.
One other model is the Stockholders and
Shareholders model. The shareholders model theory was originally brought
forward by Milton Friedman himself and his theory was that a business main
responsibility is to just generate profits.
The stockholder model theory
is when a company owes the stakeholders a responsibility, rather than just
shareholders. Edward Freeman, he came up with the stockholder theory and found
out to be important to corporate social responsibility.
In relation to the stockholder and
shareholder theories, there are four parts to it. These four parts are
productivity, progression, philanthropy and ethical idealism. In relation to
productivity, it is believed that the only objective that a firm must reach is to
ensure big profits are being made. In terms of progression, it is to be
believed that corporate behaviour is
spurred on by their own self-interest and
they should have the power to change society for the better. In terms of
ethics, their worries are that the sharing of corporation profits for ethical
activities. E.g. human welfare. In terms
of philanthropy, their corporate social responsibility is morally
There have also been companies who have used
implemented different models. Ben and Jerry’s are one of them. Corporate
philanthropy is implemented. They donated a sum of their profits in order for
them to become far more socially
adequate. They also launched a community project in 1999, this projecting
detailed of the prospect of improving their methods on their daily operations
to protect them from impurities, whilst in the long run, not damaging them
economically and as a result making them far more sustainable.
Friedman’s statement has some good points but also bad points. The good points
for Milton Friedman were the profits
being lowered in a short amount of time, the costs of products increasing etc.
However, the bad points are that just relying on the responsibility of
maximising profits d nothing else is just abnormal in my eyes.
How about, for example, we rely on solely profits,
we could hurt the company’s corporate image in the process. Nowadays a business
doesn’t just rely on profits, yes profits are a key component in a company, but
not the only component.
economic side of a business is now as much of a key component as the social
side of it. The ethical and environmental side are also equally important.
There are companies who have implemented Milton Friedman and have failed miserably, unfortunately. One of these
companies is called Enron. This company may ring a few bells as they were part
of one of the biggest accounting scandals in history.
There are companies who
didn’t practice what Milton Friedman recommended and maintained a balance of
maximising profits whilst being socially responsible and still are very
successful to till this very day. A couple of these companies are Nike,
Starbucks, Dell etc.
in conclusion to what Milton Friedman’s statement, I found his statement to be
right only to a small extent but I found his statement to be incorrect. In a
business, businessmen would not have total leniency in their ways and means to
maximise profit. They still must abide by the ethical and legal laws.