In the aftermath of recent business scandals such as Enron, Worldcom, and Parmalat the discussion about ‘Ethics in Business’, which was not exactly a hot topic during the last 20 years or so, has been inflamed anew. However, ethical corporate governance, the catch line of countless discussions in recent times, is only one but many aspects to ethics in business. This paper will focus on the aspect of corporate social responsibility rather than the issue of corporate governance. Although not as hot as corporate governance, corporate social responsibility is certainly no less important as incidents like the Exxon Valdez accident in 1989 clearly demonstrate. In fact, corporate social responsibility even covers the t opic of corporate governance since governance failures as observed at companies like Enron do not only hurt a company’s shareholders but to a large extent also most of a company’s stakeholders - which in the end often make up a considerable part of society. Milton Friedman’s (in-)famous 1970 article “The social responsibility of business is to increase its profits” will serve to represent the libertarian view which assumes great credibility to concepts like ‘Agency Theory’ and the ‘Invisible Hand’. After elucidating Friedman’s ‘classical’ liberalist approach, which in itself makes perfect sense, this paper will point towards the deficiencies of Friedman’s argument. By applying a broader understanding of how corporate social responsibility is to be derived i t becomes obvious that Friedman is telling only part of the story. This consideration will then serve as a foundation for the attempt of developing a framework of corporate social responsibility which goes beyond increasing profits only. [...]
Table of Contents
1. INTRODUCTION
2. CLARIFICATIONS ON THE TERM ‘BUSINESS’ IN THE CONTEXT OF SOCIAL RESPONSIBILITY
2.1 FRIEDMAN’S APPROACH
2.2 A MORE COMPLETE APPROACH
3. POSITIVE VS. NEGATIVE RIGHTS
3.1 THE SOCIAL CONTRACT
3.2 THE FULFILMENT OF THE SOCIAL CONTRACT
4. THE COSTS OF SOCIAL RESPONSIBILITY
5. TAXATION WITHOUT REP RESENTATION?
5.1 THE PROBLEM OF REPRESENTATION
5.2 THE PROBLEM OF TAXATION
5.3 THE EXTENT OF SOCIAL RESPONSIBILITY
6. CONCLUSION
Research Objectives and Themes
This paper aims to critically evaluate Milton Friedman’s seminal 1970 argument that the sole social responsibility of business is to increase its profits. By identifying critical deficiencies in Friedman’s libertarian perspective, the research seeks to establish that businesses, through their owners and managers, maintain an implicit social contract that extends beyond purely financial performance.
- Critique of Milton Friedman’s "The Social Responsibility of Business is to Increase its Profits"
- Examination of the Agency Theory and its implications for corporate social responsibility
- Analysis of the implicit social contract between business, government, and society
- Distinction between positive and negative rights in the corporate context
- Exploration of the ethical responsibilities of business managers
Excerpt from the Book
The social contract
As an example consider the tendency of many corporations to shift an increasing number of jobs, sometimes even corporate headquarters, to foreign countries with low labour costs and more favourable tax environments. Normally, these firms have received or still receive considerable direct or indirect support from government as well as the society it operates in. For instance, the government maintains an educational system that creates a skilled labour force which is then being employed by the company to create (shareholder-)value. The government does so for the benefit of society as a whole under the assumption that the company will in the future ‘pay’ for this benefit, partly by creating jobs and paying taxes. Therefore, the parties involved, namely a company’s owners, government as well as society, implicitly create a contract which confers both rights (Barry, 2000, Section 1) and obligations on a company, based on ethical custom rather than law.
Summary of Chapters
INTRODUCTION: This chapter contextualizes the growing importance of ethical corporate behavior in the wake of major business scandals and introduces the intent to challenge Friedman’s narrow focus on profit maximization.
CLARIFICATIONS ON THE TERM ‘BUSINESS’ IN THE CONTEXT OF SOCIAL RESPONSIBILITY: This section deconstructs Friedman’s definition of business entities and the Agency Theory, presenting an alternative, more comprehensive view of responsibility.
POSITIVE VS. NEGATIVE RIGHTS: This chapter argues that society possesses positive claim rights against corporations, which are underscored by the implicit social contract.
THE COSTS OF SOCIAL RESPONSIBILITY: The author addresses the financial burden of social activities and argues that these costs should be borne by owners rather than customers or employees.
TAXATION WITHOUT REP RESENTATION?: This chapter challenges the idea that social spending is equivalent to illegitimate taxation, examining the nuances of representation and the nature of social payments.
CONCLUSION: The final chapter summarizes the findings, reiterating that while a universal framework for corporate social responsibility is not yet fully developed, businesses clearly hold responsibilities beyond mere profit generation.
Keywords
Corporate Social Responsibility, Milton Friedman, Agency Theory, Social Contract, Business Ethics, Profit Maximization, Stakeholder Theory, Taxation Without Representation, Corporate Governance, Corporate Executives, Implicit Contract, Business Scandals, Positive Rights, Negative Rights, Ethical Custom.
Frequently Asked Questions
What is the fundamental purpose of this paper?
The paper aims to critique Milton Friedman's 1970 argument that the primary responsibility of business is to increase its profits by revealing the limitations of his approach regarding corporate social responsibilities.
What are the core thematic areas?
The core themes include Agency Theory, the concept of the social contract, the distinction between positive and negative rights, and the ethical obligations of managers within a corporate structure.
What is the primary research objective?
The goal is to demonstrate that Friedman's view is incomplete and to propose a framework that acknowledges the indirect social responsibilities held by corporate owners and managers.
Which scientific method is utilized?
The author uses a analytical-theoretical approach, utilizing existing literature and philosophical concepts to deconstruct and challenge Friedman’s argumentation.
What topics are discussed in the main body?
The main body treats the definition of business, the role of executives as agents, the nature of implicit social contracts, the impact of shifting operations abroad, and the ethics of tax-related arguments.
Which keywords characterize the work?
Key terms include Corporate Social Responsibility, Agency Theory, Social Contract, Profit Maximization, and Corporate Ethics.
How does the author challenge the "taxation without representation" argument?
The author argues that social costs are not imposed without representation because they are derived from an implicit contract that exists between the company owners and the legitimate representative of society.
What is the author's stance on the manager's ability to act socially responsible?
The author contends that managers are not "ill-equipped" for social decision-making; rather, it is part of their professional role to allocate resources, and further research is needed to determine the exact extent of these responsibilities.
- Quote paper
- David Federhen (Author), 2004, "The social responsibility of business..." - A position paper on Milton Friedman, Munich, GRIN Verlag, https://www.grin.com/document/26773
