“THE SOCIALRESPONSIBILITY OFBUSINESS IS TO INCREASEITS PROFITS” –MILTON FRIEDMAN, 1970 –A CRITICAL ANALYSISby•    Cheryl M...
CONTEXT OF STATEMENTTHE STATEMENT: “The social responsibility of a business is to  increase its profits.” (Friedman)THE C...
Social Responsibility + ProfitDefinition of Social Responsibility as it relates to Profit      Taking into account “the i...
Friedman‟s HypothesisSupporting arguments used by Friedman: “A corporation is an artificial person and  therefore cannot ...
Our PositionVIEW: A business has a responsibility to increase itsprofits and to be socially responsible towards its extern...
Pros & Cons of    Friedman‟s Statement   Points of Agreement:                  Points of Disagreement:       Reduced pr...
ECOSYSTEM IN WHICH    A BUSINESS EXISTSA business does not exist in isolation:                 “The organisation          ...
ExamplesExamples of companies and scenarios where Friedman‟s  recommendations were practiced (pure capitalism, free  enter...
A Synergistic Approach (cont‟d)FINANCIAL –Synergistic Approach is Optimal   Supernormal Profits (Friedman‟s Model is    u...
A Synergistic Approach (cont‟d)2007 – 2010 Financial Donations: Employee Participation           2008 - 2010 Financial don...
A Synergistic Approach (cont‟d)SOCIAL & GOVERNMENTAL – (e.g: communities, workers,                                        ...
A Synergistic Approach (cont‟d)MORAL & ETHICAL – (e.g suppliers, workers,                         communities)   Utilitar...
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Final group presentation web 2- friedman

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Social Responsibility & Profits

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Final group presentation web 2- friedman

  1. 1. “THE SOCIALRESPONSIBILITY OFBUSINESS IS TO INCREASEITS PROFITS” –MILTON FRIEDMAN, 1970 –A CRITICAL ANALYSISby• Cheryl Mayers-Goddard• Claire Sargeant• Lisa HaynesGroup 3 of the Durham Caribbean MBA
  2. 2. CONTEXT OF STATEMENTTHE STATEMENT: “The social responsibility of a business is to increase its profits.” (Friedman)THE CONTEXT: Who When Where Why
  3. 3. Social Responsibility + ProfitDefinition of Social Responsibility as it relates to Profit  Taking into account “the interests and concerns of a community rather than just its shareholders” (Sloman et al, 2010);  “a business‟ obligation, beyond that required by law and economics, to pursue long-term goals that are good for society” (Robbins et al, 2005);2 views of the Responsibilties of Corporations in a Social Context:  Classical: A company is committed solely to increasing the wealth of its shareholders  Socioeconomic: a company must also consider others and society into its allocation of resources  Reindhartd et al (2008) queried whether firms:  Can do this within their scope as laid out by shareholders  Have the wherewithal to sustain such an activity over time
  4. 4. Friedman‟s HypothesisSupporting arguments used by Friedman: “A corporation is an artificial person and therefore cannot be socially responsible.” “Social responsibility concerns the proprietors and corporate executives.” “If social responsibility is exercised it is acting against the shareholders, owners of the business.”
  5. 5. Our PositionVIEW: A business has a responsibility to increase itsprofits and to be socially responsible towards its externalenvironment. Adopting a synergistic approach vs. asingular approach, will benefit both the stakeholders andthe corporation. A business should engage in socially responsible projects but under certain conditions: Criteria:  Create Future benefit to the business – direct or indirect  Advance the corporation‟s goals  Be justifiable to shareholders
  6. 6. Pros & Cons of Friedman‟s Statement Points of Agreement:  Points of Disagreement:  Reduced profits in short run  Lost opportunities to build equity and goodwill  Possibility of discord with shareholders  Hurt corporate image in public‟s eye  Increased cost of products  Exclude entire segment of socially conscious investors  Good corporate citizens perform equally well in market.  Business are interdependent on elements in its ecosystem.  Sound business sense not to alienate stakeholders.  Creates cognitive problems/ conflict within managers‟ personal value system (agency problem)
  7. 7. ECOSYSTEM IN WHICH A BUSINESS EXISTSA business does not exist in isolation: “The organisation cannot operate in isolation from the environment of which it is a part...The Financial Social & Governmental economic efficiency of organisations is affected by governmental, social, technical and cultural THE CORPORATION variables. Organisations make a contribution to the quality of life and to the well-being of the community”The Environment Moral + Ethical (Mullins, 2005)
  8. 8. ExamplesExamples of companies and scenarios where Friedman‟s recommendations were practiced (pure capitalism, free enterprise, free market system) and failed  Enron, US Housing Market Crash, US Banking System, Stanford Financial Group, Bernard Madoff – Ponzi SchemeExamples of companies where a balanced synergy ofprofit seeking and social responsibility are beingachieved successfully  Starbucks, IBM, Google, Nike, Gap Inc., Hallmark, Dell
  9. 9. A Synergistic Approach (cont‟d)FINANCIAL –Synergistic Approach is Optimal Supernormal Profits (Friedman‟s Model is unsustainable)  Unsustainable in long run, can negatively impact bottom line  Unsustainable and result in a loss in long run  Law of Diminishing Returns  Returns to Scale  Financial Loss
  10. 10. A Synergistic Approach (cont‟d)2007 – 2010 Financial Donations: Employee Participation 2008 - 2010 Financial donations and volunteerism: Total employee contribution Financial Year 2010 2009 2008 2007 Dividends paid per share: $0.40 $0.34 $0.34 $0.32 Earnings per share: $1.88 $1.58 $1.34 1.05
  11. 11. A Synergistic Approach (cont‟d)SOCIAL & GOVERNMENTAL – (e.g: communities, workers, labour unions, trade unions)Social Partnership: Two entities need each other to survive. Businesses help share the social burden with government Government/Society Benefits from Businesses: Societal: Opportunities for Social Advancement with Incomes Earned, Educate staff, Solve unemployment concerns, Pay health care costs for workers, cheaper products for consumer – pass savings on to consumer Governmental: Help stimulate economy by expansion of operations, job Creation with tax savings vs. pocket all the profit, add capital in joint venture projects – affordable housing, charitable donations to meet needs in society, „Creative Capital‟ ( Bill Gates, Microsoft)Business Benefits from Government: Financial/Regulatory Assistance: Tax concessions, Tax exemptions, Trade protection, Subsidies, Provision of statutory and regulatory bodies
  12. 12. A Synergistic Approach (cont‟d)MORAL & ETHICAL – (e.g suppliers, workers, communities) Utilitarian Ethics (Mill)  greatest good for greatest number of people Virtue Ethics (Plato)  do what is morally advisable Universal Maxims/Natural Universal Laws & Principles  Balance + Equilibrium  Reciprocity  Homeostasis

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