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1. Milton Friedman takes a shareholder approach to social responsibility. This approach views
shareholders as the economic engine of the organization and the only group to which the firm
must be socially responsible. As such, the goal of the firm is to maximize profits and return a
portion of those profits to shareholders as a reward for the risk they took in investing in the firm.
He advocates that the shareholders can then decide for themselves what social initiatives to take
part in rather than having their appointed executive, whom they appointed for business reasons,
decide for them.
Friedman argued that a company should have no "social responsibility" to the public or society
because its only concern is to increase profits for itself and for its shareholders and that the
shareholders in their private capacity are the ones with the social responsibility. He wrote about
this concept in his book Capitalism and Freedom. In it he states that when companies concern
themselves with the community rather than focusing on profits, it leads to totalitarianism.[1][2]
In the book, Friedman writes: "There is one and only one social responsibility of business – to
use its resources and engage in activities designed to increase its profits so long as it stays
within the rules of the game, which is to say, engages in open and free competition without
deception or fraud."[3]
The idea of the stockholder theory, some[who?]
argue, is inconsistent with the idea of corporate
social responsibility at the cost of the stakeholder. For example, a company donating services or
goods to help those hurt in a natural disaster, in some ways, may be considered not taking action
in the best interest of the shareholder. Instead Friedman argues that shareholders should
themselves decide how much and to whom they would like to make donations. Some[who?]
may
argue that goods provided to society in a time of need build further allegiance to a corporation
and in theory, meet the stockholder theory's requirement to look in the best interest of the
stockholder.
There is one and only one social responsibility of business — to use its resources
and engage in activities designed to increase its profits so long as it stays within the
rules of the game, which is to say, engages in open and free competition without
deception or fraud.
Friedman was attempting to demystify the notion that corporations have a responsibility to
act to increase social welfare. In his view, managers have a moral responsibility to act always
in the long-run best interest of the shareholders.
He is not arguing that businesses should never engage in activities that increase the social
welfare; in fact, he argues that free-market capitalism itself increases social welfare. He also
notes that businesses certainly will engage in activities that will increase social welfare.
However, in Friedman’s view the manager’s sole motivation for such engagement must
always remain long-term increase in shareholder wealth.
Friedman notes that the corporate executive has direct responsibility to his employers, the
shareholders. He is also careful to argue that this is not necessarily the manager's sole
responsibility; there is, after all, the duty to conform to the basic rules of the society.
Nonetheless, Friedman emphasizes the concept of agency in arguing that the manager's most
direct obligation is to conduct business in accordance with the desires of shareholders.
“The [socially responsible] executive is in effect imposing taxes.”