Comparison_Friedman's_and_Freeman's_Attitude_to_Corporate_Social_Responsibility

Summarize and compare[1] they key messages of the Friedman and Freeman articles in your own words The two articles “Social Responsibility of Business is to Increase its Profits” published by the economist Milton Friedman in 1970 and the more recent (1994) “A Stakeholder Theory of the Modern Corporation” by the moral philosopher R. Edward Freeman both take a critical look at the responsibility of managements towards their firms’ stakeholders. While Friedman states that managers should continue focusing on what they do best (that is maximising firms’ values), Freeman suggests that the question to whose benefits and at whose expenses the firms should be managed ought to be reviewed. According to Friedman, corporate executives (agents) have the legal duty to satisfy the expectations of the firm’s owners (principals). Managers which act socially responsible in their role as businessmen disregard this principle-agent-theory as they defalcate the return on investment of stockholders and, consequently, the money of employers and customers. Only principles have the right to act socially responsible as it is their own money that they are spending. Freeman, on the other hand, is convinced that nowadays managers do not only have the duty to increase profits (“managerial capitalism”; p. 126) but have relationships to stakeholders that exceed monetary boundaries. He accepts that stockholders deserve high financial returns and that corporations only have limited liability when not acting socially responsible. However, not only stockholders but all stakeholders have the right to make claims. As they all stand in “reciprocal relationship” (p. 129) with each other, the firm’s management needs to make sure that their claims are satisfied to the greatest possible extent. Interestingly the scholars’ opposing positions are based on the same principles. Firstly, they both agree that profit-seeking corporations do not voluntarily engage in social projects without directly benefiting from them. Friedman welcomes this, while Freeman is a supporter of (limited) governmental regulations. Secondly, they are both convinced that a management’s highest priority should always be to maximize stakeholders’ benefits. Nevertheless, while Friedman states that these benefits evolve automatically when stockholders’ returns are maximised, Freeman disagrees by confirming that all stakeholders’ needs should be directly addressed. It should also be noted, that both scholars mention the notion of “the invisible hand” (Adam Smith); while Friedman thoroughly agrees with it, Freeman argues that it ignores external factors. ----------------------- [1] The instructions according to the “Course program and sessions” booklet were not consistent in what they asked students to do in the task (“summarize”/“compare”). On enquiry, a short summary followed by a comparison was requested by the faculty.