Making a Contract: Friedman's Idea of Social Responsibility

Friedman’s main arguments within the claim that ‘social responsibility’ is that the main objective for corporations is to increase profits. He states that corporate executives have a fiduciary obligation to shareholders. Executives are agents of shareholder principles, and within their contract, their main attentions are to increase profits. A breach of the contract would be shown if they were spending shareholder’s money on anything else that is not related to helping the company. Friedman continues to discuss that executives are not hired to spend other people’s money toward social improvement, and such practices would be seen as taxation without representation. When creating social improvement, Friedman mentions that corporations are not socially responsible being they do not have a conscious, they are used as a tool to create profit. The ones who are socially responsible for any negative actions are the stakeholders within the company since they are creating these unfavorable decisions towards society. Within the report, Friendman conveys that corporations are artificial people meaning that they have artificial responsibilities. To conclude Friedman’s theory, he uses these examples to explain a corporation is used as a tool, this tool is required to be used to make profit so the company can be successful. Corporations do not have a social responsibility within the company, as long as, the company is making a profit.

Freeman makes multiple arguments around the idea that a company needs to take ownership when it comes down to social responsibility. Freeman expresses the idea that managers have a fiduciary relationship with stakeholders to ensure that they are recieving value. When a corporation is making a decision within the company, it cannot purely be focused on the profit that company can earn, but including the stakeholders when making these decisions. The Stakeholder Theory is about how a business should function. Creating value within a business is the success factor that is required for a company to continue to grow. When a company is creating value for stakeholders like employees, suppliers, shareholders, etc. when considering change within the business. Each one of these stakeholders has a substantial role that they play within a company to ensure that it continues to run smoothly. When they are not considered and the main focus revolves around profit, this is when the stakeholders start to efficiently and effectively decline. Freedman offers different ways to take stakeholders into account and that is through Kantian ethics, Utilitarian ethics, and Rawlsian. Freedman’s theory uses the stakeholders are the value of creating profit. When the stakeholders are rewarded and successful, then the company can be successful.