Friedman's characterization of moral responsibility has been questioned. Milton Friedman states, “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 uses two words that seem to define the boundary of ethics in this stockholder theory – “deception or fraud”. [6] In 2017, Harvard Business School professors Joseph L. Bower and Lynn S. Paine stated that maximizing shareholder value "is now pervasive in the financial community and much of the business world. Friedman introduced the theory in a 1970 essay for The New York Times titled "A Friedman Doctrine: The Social Responsibility of Business is to Increase Its Profits". [10], Other scholars argue that it is unhealthy and counterproductive to the companies that practice it. [8], The Friedman doctrine is controversial,[1] with critics variously claiming it is financially wrong, economically wrong, legally wrong, socially wrong, or morally wrong. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad. The Goal of a Business is to Profit: Businesses sell products to others (e.g., [21] Duska said of a hypothetical businessperson's belief that there is no business ethics beyond making a profit: "Does that mean [the businessperson] is likely to give you a faulty product if he can get away with it and make more profit? Say the project at hand is to develop a new men’s electric razor. In addition to lobbying against socially unacceptable practices and to changing the laws that require big business to conform to socially acceptable standards of responsibility, individuals need a change in values when they come to investing in a company. Stockholder theory, also known as shareholder theory, says that a corporation’s managers have a duty to maximize shareholder returns. “The theory that keeps you out of federal prison!”. Everyone knows of Apple’s mission to be the world’s best computer designer, and this mission may therefore drive managers and employees alike, but is there a greater foundation on which this mission has been built? The New York Times magazine, 32–33, 122–124. "[6] The Economist said in 2016 that a focus on short-term shareholder value has become "a license for bad conduct, including skimping on investment, exorbitant pay, high leverage, silly takeovers, accounting shenanigans and a craze for share buy-backs, which are running at $600 billion a year in America".[7]. This being to increase the value and return on their investment (Friedman, M. 1970). Academic and business leaders have tried for a long time to define the purpose of a corporation. If this fundamental change of values doesn’t start becoming the trend of the majority, than management, who ultimately are responsible to act on their shareholders behalf, will just continue to find loopholes in the regulatory systems of other nations in order to boost the financial return for their investors. ", "Milton Friedman Was Wrong About Corporate Social Responsibility", https://en.wikipedia.org/w/index.php?title=Friedman_doctrine&oldid=978805364, Creative Commons Attribution-ShareAlike License, This page was last edited on 17 September 2020, at 01:38. The stakeholder theory is a theory of organizational management and business ethics that accounts for multiple constituencies impacted by business entities like employees, suppliers, local communities, creditors, and others. Website by Prime Concepts. It could well be that many industries like Apple, although appearing to follow the stakeholder theory (The theory where all groups associated with a particular company, have some degree of claim in “determining the future direction of the firm in which they have a stake” (Freeman, R. 1993)), may in fact be using defensive strategies in acting socially responsible. This article suggests that under the stockholder theory, Apple would become more socially responsible if it meant preserving its primary financial interest; the purchaser’s willingness to consume Apple’s products. The Environmental and Human Health Effects of Outsourcing Garment Production to Bangladesh. The shareholder theory is an idea that has been predominate in American business practices for the last 25 years as of 2015, according to The Economist. In large companies that produce products for the public where safety features are an issue, when the brake pedal problem was first noticed by Toyota, long before the recall in 2009, an effort should have been made by interested stakeholders in dealing with the problem.

Ethically then the employees and management of Apple Computer are obliged to conduct themselves in a way that accomplishes Apple’s objective and business purpose. http://www.businessinsider.com/ford-motors-is-closing-factories-and-shipping-jobs-overseas-2010-10, http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html, http://www.reuters.com/article/us-davos-meeting-inequality-idUSKBN0KS0SW20150119, http://www.statisticbrain.com/outsourcing-statistics-by-country/, http://www.usnews.com/news/blogs/data-mine/2014/12/11/outsourcing-to-china-cost-us-32-million-jobs-since-2001. Legal Information. Let’s take a simple project and see how the stakeholder theory might work. Module 4, 71203 Business Ethics. Under the Stockholder Theory if Apple had only the bottom line to consider then hiring cheap labor in China would be ethical and no problem.

My response? Apple leads the digital music revolution with its iPods and iTunes online store. These people may see this theory as being as valid today as it was in 1970 when Milton Friedman first said that the responsibility of business is “to make as much money as possible while conforming to the basic rules of the society” (Friedman, M. 1970). For the everyday project manager, when handed a project, consider your stakeholders and answer these questions to help you understand the fundamentals of stakeholder theory and implement them: Part of stakeholder theory is the element of awareness, involved decision making, and keeping the integrity of any project first and foremost. The social responsibility of business is to increase its profits. "[5] In 2016, The Economist called shareholder theory "the biggest idea in business", stating "today shareholder value rules business". If, for example, the stockholders have created the business that is designed to maximize profit for the stockholders – then one might assume that business choices will be focused on maximizing revenue and minimizing costs – even if that includes using cheap labor in a foreign country. So when looking at this theory, what does this all mean? Back to Apple. It has led to a set of behaviors by many actors on a wide range of topics, from performance measurement and executive compensation to shareholder rights, the role of directors, and corporate responsibility. [2], He argued that the appropriate agents of social causes are individuals—"The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so.