Friedman’s view on the social responsibility of businesses

In operation of businesses, organizations engage in activities which some are ethical while others are not.  According to Friedman’s view, the social responsibility of businesses is to maximize profit. From this statement, people may have different views concerning its meaning especially in regard to the today’s requirement of businesses to take social responsibilities. According to Asrar (2017, P. 78), being a socially responsible means that the company balances profit-making activities with those that benefit the society.

Although his theory makes sense to some extent, it contradicts the corporate social responsibility theory which affirms that businesses whether small or big are entities with economic, legal, ethical, and charitable obligations. Comparing this theory with Friedman’s assertions, it is clear that although the corporate social responsibility talks about obligations and not responsibilities, the two talks about different things when it comes to the expectations of a business to the society (Anjana 2013, p. 24). While Friedman feels that the social responsibility of a business is to make a profit, the corporate social responsibility theory considers other factors which corporations should also put into consideration while focusing on maximizing their profits. Friedman’s theory views profit maximization as an independent factor while the corporate social responsibly views it as something which relies on adhering to the obligation of being socially responsible in order to be maximized.

From Friedman’s statement, one can affirm that his central point was to mean that profit comes first in whatever thing a company does and all activities which business engage in should be aimed at profit maximization (Chi-jui 2010, p. 157). Although this may make some sense because a company cannot succeed without profits, his assertion may be absolute especially in regard today’s business operations and requirements because, in many countries, corporations are required to take social responsibilities whether they make a profit or not.

Although one may reject Friedman’s assertions because of various factors, to some extent, it makes sense because businesses which engage in social responsibilities are those that have made a profit and want to maximize it. A firm which is struggling to attain better revenue cannot spend money on undertaking activities which do not have direct revenue benefit (WALUYO 2017, p. 146). It will rather use the money to finance projects which can assist it to realize better turn around directly or in short term.

For organizations to survive, they must make a profit in order to be able to please their shareholders and also be at a position of growing (Mitra 2013, p. 115). This means that Friedman was right by stating that the social responsibility of a business is to make a profit. A business that does not make a profit cannot exist because it means that it is not possible to meet its primary goal of being in existence.

Corporate social responsibility theory vs. Friedman’s theory

Although Friedman’s assertion is viewed as controversial and one which would be difficult to be applied in today’s business operations, to some extent and with deep analysis of its meaning, it makes some sense especially when viewed on a perspective of nature of businesses operations, their interests and relationships with the society (Evangelos 2018, P. 324). For example, although a business may be willing to utilize its time and resources in undertaking activities which benefit the society in order to be termed as socially responsible, it cannot do so when the company does not have the required resources and time, and this can only be attained through making profits.

In stating that the social responsibility of a business is to increase profit, Friedman meant that businesses have one social responsibility: using their resources and participating in activities which are designed to maximize their revenue so that they can remain within the rules of the game. For every company, the rule of the game is always to make use of various strategies and resources to engage in revenue maximization (Tipakorn 2014, p. 123) Organizations also compete to ensure that they attain customers and market share which can make them to increase their profit. This means that although an organization may engage in various activities, the bottom line is always to increase their profits.

Comparing this assertion with the triple bottom line theory, there are some aspects which show the two differ in some ways. For example, the triple bottom line theory affirms that corporate leaders make their bottom-line results based not only on economic terms but also in terms of company’s impact on the social responsibility, and with respect to the environment. From this theory, corporate managers have the responsibility of enhancing economy through engaging in different activities to make a profit and also have the duty to engage in activities concerned with social and economic factors (Julie 2013, P. 35). Friedman’s theory seems to emphasize that the work and responsibility of corporate managers is to please their shareholders through giving them a better returns on investment, while the triple bottom line theory differ with this assertion because it emphasizes that businesses should incur costs while taking social responsibility in promoting relationships with the community while still focusing on revenue maximization.

In comparing the Friedman’s assertion with the stakeholder theory of corporate social responsibility, it seems that the central meaning made by the two are not the same. From the stakeholder theory, there is much emphasis on promoting the wellbeing of all stakeholders while Friedman’s theory emphasizes promoting the wellbeing of the shareholders through revenue maximization.

Profit maximization as an independent factor

Corporate managers are individuals who different have responsibilities, however, these responsibilities are to please the shareholders or other people associated with the equity of the corporation. In most cases, the responsibilities are to make as much revenue as possible in order to get a favorable return on investment (Yunus and Weber 2010, p. 67). This assertion is sometimes referred to as Friedman’s shareholder theory and significantly supports his statement that the social responsibility of a business is to increase profit because shareholders do not hire managers with the aim of making them to be socially responsible, but rather, to use better strategies to make the businesses yield as much profit as possible.

According to Friedman, a business cannot have responsibilities, either social or anything else. The reason why he made this point of view was that businesses are established to sell products or services primarily to make income to the owners, or shareholders through profits (Drye 2017, P. 9). Being socially responsible is something which comes after the idea of making a profit, and this comes because of laws, or because a company willingly wants to engage in activities which promote social responsibility.

Taking examples of other things, the internet does not have responsibilities, the weather also does not have e responsibilities, and this means that because a business is the same type of a general system, it also does not has responsibilities (Fergus 2014, p. 15). If it does, then the responsibility should be the reason why it was established and this is to make a profit in order to sustain its growth, and also to please its shareholders.

Friedman’s argument, especially in regard to the private sector, is correct up to a certain point. According to Barot (2015 P. 136), every business has a primary goal, and in this case, the major goal for profit-making organizations is to make profits and in turn assist in enhancing the economy. Unlike the private sectors, social responsibility is in most cases an obligation given to the public sector and non-profit making organizations. This means that because of these differences, sectors which make use of each other’s methods may not attain their desired results. However, Friedman’s statement does not mention a system in which the private sector has had a large influence over the public sector or non-profit making organizations, and this weakens his point significantly.

Friedman’s idea that it is a company’s responsibility to maximize profits is based on the idea that by doing so these businesses enhance economic condition of a country and stabilize prices for consumers while also reducing the rate of unemployment through creating job opportunities for the public (Leo 2011, p. 24). While his argument is correct to some extent, he stops of what seems to be apparent: the benefits realized by these businesses in most cases seems to outweigh the positive impact realized by the mainstream society.

Triple bottom line theory and its differences with Friedman’s theory

While this may be the case in some instances, some people may argue that his theory is somehow inconsistent. If he argued that social responsibility is meant for the public sector, then his assertion that maximizing profit is to be socially responsible seems not correct (Agnieszka 2011, p. 350).  In regard to the meaning of being socially responsible, Friedman’s assertion may appear incorrect to many because being socially responsible means that an organization participates on activities which can enhance the wellbeing of the society and also to enhance the relationship between the public and the business. This means that if Friedman links profit maximization with being socially responsible, then to most people his assertion may seem inconsistent (Barot 2015 P. 136). If he linked the profit made by doing something for the society, then his assertion could be somehow correct and could make sense to those who understand the meaning of being socially responsible.

Comparing Friedman’s theory with the business ethics theory, the assertions made by the two in regard to the purpose of social responsibilities in businesses seems to differ in various ways, and this may be one of the reasons why Friedman’s view in concerning the reasons why businesses should be socially responsible is viewed as controversial (Yunus and Weber 2010, p. 67). The business ethics theory of SCR affirms that the wider social responsibility and the moral duty for businesses should be towards the society. unlike Friedman’s theory which views the social responsibility of a business as mainly increasing profit, this theory justifies three different but related ethical grounds of corporations. One is focusing on using time and resources to address social problems, the second is viewing a corporation as a better citizen which has a responsibility of participating in enhancing social well-being, and finally, the responsibility of businesses to be viewed  as playing a role in promoting universal principles such as social justice, fairness, and human rights.

From this discussion, Friedman’s theory seems controversial because it makes claims which in some ways match with other theories and also differs with others. By coming up with this assertion, Friedman wanted to mean that the social responsibility of businesses is to please shareholders through giving them better return on investment and this is why his assertion has a close relationship with the shareholder’s theory which was also made by him. However, by considering the meaning of being socially responsible, his assertion may appear incorrect even if it relates to other theories.

Friedman’s assertion concerning the social responsibility of a business differ with most of the theories discussed in this paper because the majority of them view corporations as ones which have the responsibility of engaging in activities which promote social wellbeing other than only concentrating on increasing profitability to please shareholders. Some of the theories which largely differ with Friedman’s assertions include the business ethics theory of CSR, stakeholder theory of CSR, and the business ethics theory of CSR.

References

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