Evaluation_of_Friedman_and_Freeman’s_Theories_for_Use_in_This_Century

In the two articles of Friedman and Freeman, both authors had two conflicting opinions on the goals and responsibilities of a business. Friedman believed that the only group that has a moral claim on the corporation is the shareholders. In opposite, Freeman’s stakeholders theory of management said that stakeholders can be anyone like employees, customers, community and competitors who are affected by business operations, procedures or policies in either positive or negative way. Thus Friedman and Freeman differ in analyzing a case. When making company decision, Friedman said that the primary job of a business is to make money for the stockholders and the company will identify relevant laws, regulations, ethics customs and not cheating as business have no responsibility for those who not own the company and the only goal is to use company resources to maximize its profits in order to compete in free market. On the other hand, Freeman argued that primary job of business is to create value for all stakeholders while making balance and managing relationships with them. When company making decision, it will identify all stakeholder groups with available options, then determine the effect they will have on the stakeholders, and finally to determine the best one by applying ethical theory to the options. Friedman always said if business taking also other responsibilities, such as employee, it may hurt benefit or increase the cost of other aspect, which will hurt business own profit. It is not always true. Friedman overlooked employees an important party to consider. Many studies performed researches proved that if a firm treats its employees well; their satisfaction will lead to better productivity which can generate better profits. Therefore the groups are all interrelated which ignored by Friedman. Foxconn International Holdings treated their China employees badly and after reported by media its stock price dropped 40% for a year and threatened by their largest buyer Apple to withdraw some production. It could be a huge impact on a company profit if they ignore some social responsibility factors. A success company is to profit maximization suggested by Friedman, he believed the market will be self-regulated and government will help to do all remain social related stuffs and business have nothing to care about. CSR is taxation and it is abuse use of company resources by doing government’s role. However the basic assumption of Friedman is not true because Friedman is too ideal as there have no absolute free market in this world. In fact market failure always happen so his theories cannot work. In real life, government cannot do all the things and monitor that well. With Friedman concept, if a company is known to be dishonest or terrible to their employees, consumers will not buy from that company; again this is not necessary be true. HSBC or PCCW cut employee again and again under huge profit but no significant customer loss due to the incidents. Friedman’s theory not works on the rise of globalization which means the firm’s moral obligation is beyond a single state but within the whole world. Global corporations nowadays generate huge profits which meets Friedman’s requirement but they treat their production labours badly and create ecological disaster in other countries which are immoral and a worst crimes against humanity. The problems exist especially in China or South East Asia that more corporation self-regulation and government intervention on policies are needed. Freeman’s theory which treats all stakeholders as a whole on decision making can help to solve the problem. In current society, what make a company to success is far beyond just profit making. In order to maximize profits in long-run, companies need make great products or services that customers want, motivate and well treat employees who stand for the company mission, maintain good relations with suppliers that keep operations smooth, support communities such as protecting the environment that allow businesses to grow. Internet’s power allows scandals and mistakes to be immediately spread among key stakeholders, such as consumers. If companies wish to survive in the long run, they need to convince these stakeholders that they are providing them value and this is what Freeman’s suggested. Some large corporations in fact control the lives of people in the societies much more than the governments which they are immoral in public’s mind. However, different to Friedman’s thought, government role can’t do much to solve if the corporations don’t do something to regulate themselves or take other stakeholders into business decision making process. For example, the domination of two supermarkets in Hong Kong situation which control the products price, nothing can be done to solve the problem. Ignoring other stakeholders will lead to disaster of company. For example, Nike’s owner Phil Knight ignored labor issues of contractor factory caused Nike’s revenues a big drop from this image problem. MengNiu Dairy scandal of its problem milk powder is even worst, the company turned to loss and its share price dropped over 70%. The impact of just profit-focus mindset is big nowadays. Business should work out CSR for their due diligence but not Friedman belief that managers have no social expertise they should not involve in it. In practice, for small firm they can design their employee, products, information policies with common moral sense as they can; for large corporations they should be able to have a department specializing in CSR. Again, these are not just expense but can generate long term profit in either tangible or intangible ways. To conclude, Friedman’s theory worked in his industrialization age talking about profits but not for current situation. Some may believe that CSR distract business or economy, I believe that having effective CSR policies in combination with appropriate business and marketing strategy could help a corporation generating better profits and benefiting society in long run. Friedman’s theory only work for a business in short run. By using Freeman’s four level’s Company Stakeholder Responsibility and Ten Principles for Company Stakeholder Responsibility is more suitable to modern company process, by focusing on customer needs, providing employees with meaningful work and treat others stakeholders well with taking priority into consideration as corporations also have to take profit which Freeman not too focus on. Business tends to neglect ethics, government regulations are essential to force companies to act better and ethically. With proper intervention it could direct the market towards ethical behavior. Business by adopting Freeman’s theories and making balance, business can be sustainably run in long term for good.