Questions on Articles by Christopher D. Stone and Work by Milton Friedman Essay Example
- What criticisms does Friedman raise against business managers who engage in "socially responsible" practices?
Explain. Friedman criticizes business managers who engage in socially responsible behavior by arguing that they should have different criteria for their actions as corporate executives compared to their actions as individuals in a free society.
A business manager's main responsibility is to maximize the profit of the corporation. Combining this role with promoting a socially responsible cause, which may increase costs or decrease revenue, can be seen as imposing a tax on customers, shareholders, and employees without their consent or knowledge. Friedman argues that engaging in socially responsible activities essentially turns a business manager into a socialist governmental agent, as socialism prioritizes the interests of the people it governs over fostering a free market or capitalism. Therefore, for a corporate executive seeking to maximi
...ze profits, it is not feasible to have a split focus on the goals of the corporation while actively participating in socially responsible activities.
According to Friedman, the market mechanism is based on unanimity while the political mechanism operates on conformity. Unanimity in the market mechanism means voluntary cooperation based on agreed social values, while conformity in the political mechanism requires cooperation even with disagreements. However, achieving unanimity is impractical and thus the political mechanism is more likely to be utilized. Christopher Stone criticizes Friedman's view by pointing out that corporations are not equivalent to human beings in terms of rights and differences between them should be acknowledged.
According to Stone, the corporation's agreement with shareholders does not exclusively prioritize profit maximization since most shareholders are not the original buyers of the shares. Stone argues that although shareholders have expectations regarding ho
their purchased shares will perform, these expectations do not create a contractual obligation for the corporation to act in a specific manner. Furthermore, the anticipated performance may not even include profit maximization as part of its underlying expectations. Stone's perspective allows business managers to have a dual focus: leading the corporation in a way that ensures profitability and engaging in socially responsible activities or causes.
In contrast, Friedman disagrees with this viewpoint and asserts that a corporation's business manager has an obligation solely to maximize profits for shareholders, while social responsibility is considered separate. According to Friedman, regardless of whether shares were acquired from previous shareholders or directly from the corporation itself, there exists an inherent expectation for corporate leaders to prioritize actions that lead to maximum profits.
According to Friedman, engaging in socially responsible activities on a personal level is what business managers do. However, these actions may result in a reduction of corporate profit, which shareholders perceive as a "tax" and may not be informed about or support.
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