Milton Friedmen and CSR

Social responsibility can be viewed as a vital aspect of people’s lives across the globe. Lately, it has also become one of the major increasing concerns in the business world. As a result, interactions between businesses, society, and government have greatly developed. In addition, the standard view of a business’s social responsibility holds that it should involve actions that maximize its profit according to Milton Friedman. Contrasting to this view is the socioeconomic outlook of social responsibility which believes that an organization should give back to the society that supports it.

The main focus of this paper will be to discuss the basis of Corporate Social Responsibility (CSR). It will define the phrase and explain alternative theories used to discuss the argument made by Milton Friedman on Social Responsibility. It will describe how these theories are connected to the main purpose of the business and the concepts of profitability.

Corporate Social Responsibility

According to Milton Friedman

Corporate Social Responsibility (CSR) as a business expenditure that minimizes a company’s net profit is termed as a fundamentally subversive doctrine by Milton Friedman. However, the representation of ethical business regulations into the business model is termed as Corporate Social Responsibility. It provides corporations with an outline on how to embrace their responsibility towards their employees, the environment, the community, as well as other users of their services. For a long time, there have been frequent reports about ethical and social issues faced by business organizations. The social responsibility of a company is defined by its general engagement in actions that improve people’s lives. Corporate citizenship has become one of the most significant matters in the business community and is continually developing to be a conventional activity (Denis, D. 2016, 467-480). Additionally, it is increasingly understood that businesses are capable of contributing their individual capital and also the wealth of the overall society, by considering the impacts they have on the public in their decision-making process.

Corporate Conscience may incur short-term expenses that do not offer an immediate financial profit to the organization but rather uphold positive environmental and social changes. The main basis as to why social responsibility should be put into consideration is the constant increase in globalization, consolidation, and the growing influence of business firms, which accelerates competition in the marketplace, thus enhancing the importance of the trademark and the image of the company. Furthermore, companies have social responsibilities in respect to their operations for the success of society and its environment. Corporate citizenship can also be seen as a charitable contribution of an organization to society, either economically or socially, directly proportional to the primary business of the organization (Wright, K. 2016).

A responsibility is, however, incurred as a result of neglecting the subjects of business necessities and the demands of a society. Corporate Social Responsibility of a company may include work organization, process control, the employment correlation between an employer and employees, customers, procurement, marketing tactics of the business, a relationship with the government agencies, environmental protection and planned business structure. Moreover, Milton Friedman was against any action that alters the business’s economic freedom and disputed for an express form of entrepreneurship. According to Milton, socially responsible activities performed by a corporation influence the business freedom since the shareholders are not in a position to make a decision on how to invest their money. He therefore argues that organizations should concentrate on those activities that are only connected to making a profit for the company efficiently exclusive of charitable works that do not earn any revenue.

Friedman insists that there is only one social responsibility for a business, which is to make a profit provided it doesn’t engage in market competition. This argument raises some queries as to whether the businessmen can operate in any manner to maximize profits. Though Milton declares that managers as representatives of the business must act within the regulations of the business, this creates a room for unethical works. Does this really mean that the managers can act in any way so as to increase the profits? However, the major explanation as to why Friedman excludes charity works is because they do not directly add any profit to the business. According to Milton’s view, an excellent corporation is the one that undertakes activities that are cost-effectively viable but not the one that carries out activities because they are ethically good.

This is one of the main Friedman’s arguments for not including Social responsibilities in business organizations according to his view on ethical payouts. He continues to argue that it is not suitable for a corporate manager to begin socially accountable programs because of the little inducement for the cautious expenditure. Milton further stated that a business is a morally unbiased legal entity that focuses on increasing income for its shareholders as its primary objective. In addition, the executives and managerial team of an organization are appointed to attain this sole purpose (Thrasyvoulou, A. 2016, 69). The one and only moral role of managers and administrative staff is to meet the expectations of investors. Nevertheless, for a company to sustain itself for a long time, it must augment its earnings in a way that it meets the expectations of the shareholders that permit it to continue operating. Besides, in case these requirements change, it is the responsibility of the business to adjust its performance in order to continue with its main purpose. This is the only piece that Milton’s argument ignored.

Additionally, the regulations of a business have been distorted in a very essential manner. Nowadays customers claim more responsibilities from the business other than only to increase their income. For instance, the customers want and anticipate quality from the goods they purchase, safety, and value compared to the cost paid for a certain product. Alternatively, workers desire a lot from the business, not just a paycheck. Societies require different businesses to be of high quality and to offer employment opportunities to people living in the neighboring community, to offer its recruits a source of revenue, to conserve its environment, and contribute its levies to support the development of a society even though it is not legally required. The opposition to Milton’s view is developed by the socioeconomic school of CSR.

The foremost supporter of this view suggested the Iron Law of Accountability, which stated that ‘social responsibilities of businesses should correspond to their social power’ (Griffiths and Lucas 2016, 213-226). Socioeconomic analysis argues that the entire socio-economic interests of a community should be enhanced, instead of focusing only on the welfare of the investors. Organizations that operate fully to maximize the return of their shareholders, and therefore do not involve themselves in any socially responsible actions, are said to be unethical. Following the effective motto on offering the greatest product to a large number of people, organizations are ethically required to take part in socially responsible actions that improve the total benefits of every stakeholder.

However, if corporate citizenship is disadvantageous to a business firm as declared by Friedman, subsequently the investors will tend to resist investing in companies that are socially responsible. But evidently, this is not actually the case. Additionally, Milton failed to admit that ethical activities can be a valuable advertising proposal. Furthermore, being in a position to comprehend the consumer’s desire, a company can provide goods and services that are equivalent to their ethical acts, therefore increasing its worth to both the investors and customers. The constantly increasing ethical investment shows that most investors prefer organizations that do not aim at income maximization and enforce moral restrictions on their activities. Nevertheless, managers and executives that conduct themselves unethically lead to an effective investor discontent. Lastly, the supervisors in an organization do not have the freedom to increase their income, since they have to adhere to both the moral and legal policy of the game.

Moreover, for businesses to be truly ethical, they are supposed to hold a logical level of socially responsible activities as this improves the prosperity of all shareholders. Alternative theories in relation to the Milton Friedman main points: The implementation of theories of corporate conscience aligns with the foundation to develop a model that illustrates a CSR achievement process. The usual vision of a business is that it exists mainly to earn profits. Following the perception of monetary interests, business principles are vital because they are applied to ethical dilemmas as the fight for high profits continues. Examples of these dilemmas include: ‘What requirements do companies have to ensure that people looking for jobs and promotions get them?’ and ‘What type of marketing approach must be taken into account?’ While these dilemmas continue to be significant across the economic globe, businesses are regarded to have a variety of both civic and economic responsibilities as part of their daily activities, thus developing the business ethics equally. There are many issues that must be dealt with beyond the interest for money. Several theoretical approaches explain these responsibilities.

Corporate Social Responsibility, also referred to as CSR, is one of the key theories. It is defined as a speculation of any business firm which places more emphasis on both the responsibilities that generate capital and those that interact ethically with the surrounding community. Being an explicit concept of responsibility to increase income while taking part in enhancing community welfare, CSR has four main commitments. The first is the economic responsibility to earn money. It is clear that organizations that do not make profits in a modern economic market are believed to cease operation. In the case of non-profit businesses, they make money from donations and their own activities but invest it back into their work. The legal responsibility to hold the rules and regulations is a practical duty that needs to be obeyed by all businesses, as it is the primary vision of CSR (Feldman and Korn 2017, 103). Another key accountability is the ethical responsibility that requires a company to do what is right regardless of whether the law insists or not. It depends on a consistent culture of a corporation that views the business itself as a resident in a society.

Additionally, an example of this responsibility is the instance of an industry that produces poisonous waste as part of its manufacturing process. The business may find it necessary to enclose the toxic wastes in double-cased, leak-proof containers. On the other hand, philanthropic responsibility is also vital for a business. A company can participate in various community schemes even if they do not relate directly to the business organization. However, these charitable works demonstrate that businesses, like any individual, have the responsibility to contribute to the general wellbeing of the surrounding society. Presented in order from first to last, these four obligations are critical in the theory of CSR. Further, numerous complex issues arise due to variance between the economic responsibility and the legal one. For instance, for an industry to be more profitable, it may need to dispose of waste in barrels that barely meet the standards required by law. Besides, this theory asserts that a business should adhere to the four types of responsibilities and react to the tasks in order, beginning with economic, followed by legal, ethical, and lastly philanthropic.

The next theory is referred to as the Triple Bottom Line, which is a form of corporate citizenship requiring business managers to tabulate the bottom-line outcomes in relation to economic and business consequences, the social sphere, and the environment. There are two main approaches to this. The first one is to separate the three pillars of these responsibilities and report results individually for each. The second approach is for the company to achieve sustainable results in all three areas. In the context of economics and ethics, sustainability refers to the long-term maintenance of balance. Discussed by theorists, the following illustrates how balance is achieved socially, environmentally and economically. Economic Sustainability values durable financial gains over more volatile and short-term incomes. Following the Triple Bottom Line approach, large corporations are responsible for crafting business strategies that enable continuous and extended operations.

However, sustainability is a good value that entails business strategies that result in rapid profits but also circumvent possible misfortune. Social sustainability values the equality of people’s lives and how they survive (Loosemore and Lim 2017, 90-105). For instance, in a world where a few executives earn millions, whereas thousands of citizens depend on very little money per day, development cannot progress significantly. The imbalance persistently grows, with the wealthy becoming wealthier and the deprived becoming poorer and increasing in number.

This responsibility requires that an organization, as a citizen in a certain society, maintain a good relationship with the people. Environmental sustainability starts with the assertion that natural resources, particularly fuel, water, and clean air, should be conserved. This is as important as the implementation of other resources of power to replace those that are currently being used. These three concepts of sustainability – social, environmental, and economic – guide companies on measures that align with the concept of a company as a contributing individual to society, not solely for profit-making.

The Stakeholder Theory is a reflection of corporate social responsibility that identifies and explains the people or groups affected by the business activities. This theory asks several questions such as: What privileges do the stakeholders have due to the corporation’s activities? What type of duties and requirements can they reasonably oblige a specific company to fulfill? However, this theory contends that anyone who is affected by a corporation has a right and responsibility to guide it. For instance, when an industry produces poisonous waste, CSR assigns responsibility directly to the business owners to safely dispose of their waste. In contrast, the stakeholder theory begins with the people living near the location where the business operates. They emphasize business ethics and insist that they have human rights to a clean environment. They are the stakeholders in the business and their demands should influence corporate decision-making.

It’s clear that they may not own stock, but they have ethical claims that entitle them to contribute to the decision-making process. In addition, theoretically, those influenced by an organization essentially become stakeholders. Since they are affected by business actions, they have a role in running it. The major stakeholders of a company include the workers, community, customers, and shareholders. Once a distinct set of stakeholders around an organization has been identified, the stakeholder ethics begins. However, the primary aim of a business, according to this theory, is to maximize returns from a communal bottom line. These returns are not described in terms of capital, but as the welfare of the shareholders. Over the past years, managers have had very little responsibility beyond leading the business towards making money (Ferrero et al. 2014, 59).

The most excellent corporations are those that have been generating the maximum sales, attracting more investors, and making the largest earnings. The concept of CSR, along with the related proposals for stakeholder theory and the triple-bottom-line, creates diverse principles of a business. Yet, ethics today are all about the company leadership understanding and responding to a wide range of requirements, starting with the city in which the company operates and extending to society as a whole. It is not clear whether corporate ethics based on these three theories are truly commendable in the modern world. Economist Milton Friedman asserted that the primary function of a business entity is to maximize returns for its owners. For publicly-owned companies, the shareholders are its owners.

Conversely, other economists maintain that a company’s primary objective should be to serve the needs of a multitude of stakeholders, including customers, employees, and society. Philosophers often argue that organizations should abide by certain social and legal norms. For instance, Anu Aga, the former chairperson of Thermax Limited, once asserted that, “We stay alive through breathing, but we do not live to breathe.” Similarly, making a profit is crucial for a business to continue providing its services, though money alone cannot be the primary reason for a company’s existence. However, many people agree that concepts such as economic added value are crucial to supplement profit-oriented objectives. They argue that maintaining financial profits is not possible without considering the wants and needs of other stakeholders like employees, customers, and society at large.

This theory is referred to as Corporate Social Responsibility (Makower, 2013). This notion proposes that a principal purpose for a business entity should be to balance the needs of the parties affected by the firm’s activities. Moreover, the largest multinational corporations should prioritize the needs of their customers and employees before those of shareholders in order to promote economic growth, particularly in emerging markets. However, businesses can also survive by aiming towards expansion. Successful organizations like Google manage their operations with an expansion-focused approach that benefits every stakeholder, especially the employees. Furthermore, this confirms the rising importance of innovation as a major driving force for corporate success. What remains to be addressed is the fact that there is no empirical evidence to fully substantiate a claim as absolute as Milton Friedman’s.

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