Milton Friedmen and CSR
Social responsibility can be viewed as a vital aspect in people’s life across the globe. Lately, it has also become one of the major increasing concerns in the business world. As a result, interaction between businesses, society, and government has greatly developed. In addition, the standard view of a business 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 pay back to the society that supports it. The main focus of this paper will be to discuss the basis of Corporate Social Responsibility. 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 its profitability.
Corporate Social Responsibility
According to Fried Milton
Corporate social responsibility as a business expenditure that minimizes company’s net profit is termed as fundamentally subversive doctrine by Friedman Milton. 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 its employees, environment, 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. Social responsibility of a company is defined by its general engagement in actions that advance the value of people’s lives. Corporate citizenship has become one of the most significant matters in the business community and is constantly developing to be a conventional activity (Denis, D. 2016, 467-480). Additionally, it is more comprehensible 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.
Corporate Conscience may incur short-term expenses that do not offer an instant financial profit to the organization but rather uphold affirmative environmental and social changes. The main basis as to why Social responsibility should be put into consideration is the constantly increasing globalization, amalgamation, and the developing influence of business firms, which accelerate competition in the market place, thus increasing the purpose of trademark and also the image of the company. Further, companies have social responsibilities in respect of their divisions, for the success of the society and its environment. Corporate citizenship can also be seen as a charitable contribution of an organization to the society either economically or socially, directly proportional to the main 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, employment correlation between an employer and employees, customer, procurement, marketing tactics of the business, relationship with the government agencies, environmental protection and planned business structure.Moreover, Milton Friedman was against any action that alters the business economic freedom and disputed for an express form of entrepreneurship. According to Milton, socially responsible activities performed by Corporation influence the business freedom since the shareholders are not in 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 profit for the company efficiently exclusive of charitable works that to not earn any revenue.
Friedman insists that there is only one social responsibility for a business, which is to make profit provided it doesn’t engage in market competition. This argument raises some queries of whether the business men 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 either 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-effective viable but not the one that carry 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 pay outs. 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 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, incase this requirements changes, 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 requires 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 the 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 which operate fully to maximize the return of their shareholders and therefore do not involve themselves in any social 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 evidentially 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 have a preference of organizations that do not aim at income maximization by enforcing 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 the income, since they have to adhere to both the moral and legal policy of the game.
Moreover, for businesses to be really ethical, they are supposed to hold a logical level of social responsible activities as this improves the prosperity of all the shareholders. Alternative theories in relation to the Friedman Milton Main PointsThe execution of theories of corporate conscience matches up with the basis to develop a model that illustrates a CSR achievement procedure. 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 quandary as the fight for high profits continues. Examples of the dilemmas include: what requirements do companies have to make sure that the people looking for jobs and promotions gets them’ and what form of marketing approach must put into account’ whereas these quandaries persists to be the most significant across the economic globe, the businesses are regarded to have a variety of both civic and economic responsibilities as a section of their daily activities, developing the business ethics equally. There are many issues that must be dealt with exemption of interest for money. Several theoretical approaches explain these responsibilities.
Corporate Social Responsibility also referred to as CSR is one of the theories. It is defined as a speculation of any business firm which put more emphasis on both the responsibilities that create capital and those that interrelate ethically with the neighboring community. Being an explicit concept on responsibility to increase income whilst taking part in enhancing the community welfare, CSR has four main commitments. Firstly is the economic responsibility to earn money. It is clear that organizations that do not make profits in a modern economy market are believed to terminate. In case of non-profit businesses, they make money from donations and their own activities but invest it back to 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 primarily vision of CSR (Feldman and Korn 2017, 103). Another key accountability is the ethical responsibility that requires a company to do what is right irrespective of whether the law insists or not. It depends on a consistent culture of a corporate that takes the business itself as a resident in a society.
Additionally, an instance of this responsibility is the presence of an industry that produces poisonous waste as part of manufacturing process the business may find it essential to enclose the toxic wastes in double-cased, leak-proof containers. On the other hand, Humanitarian responsibility is also vital for a business. A company can participate to various community schemes even if they do not relate to the reliable organization. However, these charity works to the public shows that businesses just like any individual in the world have the responsibility to contribute to the general wellbeing of the surrounding society. Explained in order from the first to the last, the four obligations are critical in the theory of CSR. Further, numerous complex queries arise as a result of variance between the economic liability and the legal one. For instance, for an industry to be more profitable, it may require to dispose the wastes in barrels that hardly match the ones required by the law. Besides, this theory requires that a business adheres to the four types of responsibilities and must act in response to the tasks in subsequent, beginning with economic, legal, ethical, and lastly the philanthropic.
The next theory is referred to as the Triple Bottom Line, which is a form of corporate citizenship which requires the business managers to tabularize the bottom line outcomes according to economic and business consequences to the social area, and with respect to the surroundings. In addition, there are two main solutions to this proposal. The initial one is to separate the three columns of these responsibilities and results written separately for each. The second one is that the company must attain sustainable results in all the three areas. On the other hand, in the connection of economics and ethics, sustainability refers to the long-term preservation of the balance. Discussed by theorists, below is how the balance is attained socially, environmentally and economically.Economic Sustainability is the one which considers durable monetary more valuable compared to more volatile and short-terms incomes. Consistent with the Triple bottom line approach, big corporations are accountable for creating business plans that permit constant and extended activities.
However, sustainability is a good value that entails, regarding business strategies that results to rapid profits but also circumvent possible misfortune. Social sustainability is the one that 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 are earning millions, whereas thousands of citizens are depending on very little money in a day cannot experience so much development. The imbalance persistently grows with the wealthy becoming more prosperous and the deprived becoming poorer and increases in number.
This responsibility necessitates that an organization as a citizen in a certain society sustains a good relationship with the people. Lastly, the environmental sustainability starts with the assertion that natural resources particularly the fuel, water and the clean air in the environment, should be conserved. This is more important, as it is to the implementation of other resources of power to replace those that are now being used. These three concepts of sustainability, that is social, environmental and economic, direct companies on the measures that conform with the notion of a company as a contributing individual to the society not only for profit making.
The Stakeholder Theory is a reflection of a corporate social Responsibility that lists and explains the people or groups that will affect or be affected by the business activities. This theory asks several questions such as What privileges do the stakeholders have due to the corporation activities?Which type of errands and requirement can they reasonably oblige a specific company? However, this theory holds that, anyone who is affected by a corporation have a right and responsibility to direct it. For instance, when an industry produces poisonous waste, CSR perception appends a responsibly straight to the business owners to safely dispose their waste. Contrasting this, the stakeholder theory starts with the people living around the community where the business operates in. They begin to emphasis on business ethics and continue insisting that it’s their human rights to a clean environment. Besides, they are the stakeholders in the business and therefore their demands must influence the corporate decision making.
It’s clear that they may not have any stock, though they have ethical claims to contribute to decision- making process. In addition, in a theoretical way, those influenced by an organization activities essentially become the shareholders. Since they are affected by business actions, they have a responsibility in run it.Moreover, the major stakeholders of a company include the workers, community, customers, and shareholders. Once a distinct set of stakeholders around an organization have been established, the stakeholder ethics begin. However, the main aim of a business firm, in this theory, is to boost returns from a communal bottom line. These returns are described not in terms of capital but as the welfare of the shareholders. Over the past years, the managers have had very little responsibility, leading the business towards making money (Ferrero et al 2014, 59).
The most excellent corporations are those that have been generating the maximum sales, getting more investors and making the largest earnings. The concern of CSR alongside with the correlated proposals for stakeholder theory and triple-bottom-line creates assorted principles of a business. However, morals are nowadays all about the company managerial team understanding and taking actions to a wide variety of requirements. Starting with the city in which the company operates in, and to the society as whole. Further, it is not recognized whether the corporate ethics based on the three theories are really commendable in the recent world. Purpose of a business and the concept of profitability and CSR according to Milton FriedmanEconomist Milton Friedman declared that the main function of a business firm is to maximize returns for its owners, and for a publicly-owned company, the shareholders are its proprietors.
On the other hand, other economists argue that a company’s primary objective is to offer the needs of a large number of stakeholders, such as customers, employees and also the society. Philosophers frequently affirm that organizations should put up with certain social and legal rules. For example, Anu Aga, the former chairperson of Themax limited, one time stated that, we stay alive through breathing but we don’t live to breathe. Similarly, earning income is very vital for a business to keep on offering its services, although money only can’t be the primary purpose for company to survive. However, many people agree that ideas such as economic value additional are significant to complement profit-making goals. They contend that maintaining fiscal profits is not possible without considering the ambitions and needs of other shareholders such as employees, customers, and the entire society.
This hypothesis is referred to us Corporate Social Responsibility (Makower, 2013). The notion recommends that a principle purpose for a business firm is to equate the requirements of the parties influenced by the firm. Additionally, the most important multinational industries should reflect on the demands from their customers and workers prior to shareholders so as to support economic growth, particularly in the rising markets.Nevertheless, businesses can as well subsist with an objective of creating expansion. Triumphant firms such as Google are able to control their activities with a purpose of expanding from the viewpoint of every stakeholder, mainly the employees. In addition, this authenticates the developing value of innovation as a chief basis for a corporation success. A crucial issue to deal with is the certainty that, no experimental proof to justify anything unconditional like Milton’s argument