The main point regarding this long-term debate on corporate social responsibility (CSR) is that this practice should be enforced with businesses rather than just embraced voluntarily. If corporations are regulated to be socially responsible, they will not just be focused on making a profit for their business, but instead they will give back to society by way of volunteering and outreach programs. Many beliefs and debates have brought good reasons for and against corporate social responsibility over the years in balancing both profit and CSR initiatives. Today, we will look at the thoughts and arguments from both Milton Friedman and Ed Freeman.
Before diving into the readings, I believed that corporations should be socially responsible because by holding themselves accountable companies can improve their reputation, maximize their stockholder value, operate more efficiently and really differentiate themselves from their competitors. By having an efficient corporate social responsibility strategy, companies could be more competitive and aim to have a more positive impact on society.
After reading both of Edward Freeman’s and Milton Friedman’s theories on the concept of stockholders vs. stakeholders, I agree that both points of view make a strong case against one another. Friedman’s “Stockholder theory” focuses on the idea that an organization is only responsible for its’ stockholders and nothing else. While, Freeman counters back with his “Stakeholder theory”, which suggests that firms are responsible for many parties such as customers, employees, suppliers and local communities, not just the stockholders. Both theories offer very different beliefs of what businesses should be responsible for, which gives both Friedman and Freeman good arguments. Each of their views will be broken down into great detail explaining their sides, while outlining the pros and cons of each.
According to Milton Friedman, the economist and previous Nobel prize winner, corporate social responsibility is something that should not be the main focus of businesses. In a New York Times Article, Friedman discussed his business ethic principle by saying, “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 in the rules of the game, which is to say, engages in open and free competition, without deception or fraud (Watson & Prevos, 2019)”. In Friedman’s opinion here, a good corporation is one that is economically feasible that has secure financing compared to a company that just obeys by the rules.
Milton Friedman also pushed for capitalism and believed in the “free” market system. He was under the assumption that because shareholders did not decide on how their money would be spent that this was interfering with their rights as a human being in society. He is quoted by saying in the New York Times that, “There has been the claim that business should contribute to support charitable activities and especially to universities. Such giving by corporations is an inappropriate use of corporate funds in a free-enterprise society (Watson & Prevos, 2019)”. These activities in Friedman’s mind that do not equate to profit specifically “charitable giving” should not be focused on by corporations.
Friedman’s other major argument was that corporations had a single purpose, which was to maximize the returns for the shareholders and that’s it. In his mind, positions within a corporation such as directors and executives were aimed to achieve results in order to meet the shareholders expectations. An example of this was shown when Friedman was quoted saying, “ A corporate executive … has direct responsibility to conduct business in accordance with[shareholder] desires …[i.e.] to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom”. Basically, in other words any money spent that reduced profits for shareholders was Friedman’s belief of spending other people’s money.
My disagreements in Friedman’s position are that these beliefs can cause a lot of issues both in the short and long term. This stance will contribute to many negative issues such as hurting the company’s public image, creating conflicts within management, and losing out on opportunities to build more equity. This in turn is why I do not agree with Friedman’s thoughts.
Ed Freeman, the former philosopher and professor at Wharton business school, argued against Friedman’s beliefs saying that it was a mistake to only consider profit as a company’s sole cause. Freeman focused more on the needs of the stakeholder’s vs the shareholders. He believed in the end that profit would result from this in comparison to using the profits to distribute to shareholders. He is well known for saying,” If you can get all your stakeholders to swim or row in the same direction, you’ve got a company with momentum and real power (Guthrie, 2019)”. Freeman is right here by saying that companies that continue to support and foster good relationships will in the long run have a healthy business.
Freeman’s vision was innovative and really focused on several key points that included:
- supporting the stakeholders names and being able to negotiate with them,
- challenging the company’s opinions to take the side of the stakeholder’s, and
- finding a compromise that both parties can find agreeable.
These things really solidified the concept of corporate social responsibility in today’s world. I agree with Edward Freeman’s beliefs because companies that involve all employees and promote equality will in turn succeed and those that lose sight of that will eventually fail. Organizations nowadays need to consider not just the individuals that hold stock in the company, but also the workers, customers, and competitors because that is what will impact the company for years to come. The overall benefits of Freeman’s stakeholder theory are that they can help improve companies’ reputations, increase investment opportunities, improve talent acquisition and motivate employees to work harder. Social responsibility in corporations can yield much more than just profits, or consumer demand, it can attract many good business practices such as
- good brand differentiation,
- a positive corporate reputation,
- strong recruitment/retention of workers,
- high level of interest from investors, and
- promotes a culture of motivation and productivity.
In today’s world, many companies are specifically focusing on corporate social responsibility for their employees and future candidates. The reason why is so they can offer a workplace where culture is important especially when it comes to giving back to the community and involving social issues. Examples of some corporations that excel in corporate social responsibility are Google, Amazon and Facebook.
Google is a very well renowned company that is known for its great company culture and commitment to equal opportunities amongst employees. Google offers various perks for each employee, and even allows for equal pay amongst each department. The company is always trying to improve by collecting data from disabled individuals and of different sexes to help improve their workplace. Google is so committed to the environment and reducing their carbon footprint to help make the job place safer.
Amazon is another large organization that represents being a socially responsible company in today’s world. They do it by continuing to promote safe and inclusive workplaces, whether that be in their supply chain side of the business or operations department. Their strong belief is that if they engage with the right suppliers that promote human rights, it will provide a better future in the long haul. Workers will continue to feel safe and healthy at the office, women will feel more empowered and receive better jobs, and all employment will be chosen voluntarily.
Facebook, one of the largest social media businesses in the international market is really active when it comes to supporting social media through corporate social responsibility programs. They affect billions of stakeholders that include online users such as groups, businesses and individuals. By making sure that their CSR programs and policies are satisfactory, they can support customer loyalty and keep their competitive advantages in the market.
The roles of the government are important in improving corporate social responsibility amongst businesses. They are in a position to raise awareness for stakeholders, while making sure that corporations such as Facebook, Google, and Amazon adhere to the rules of society. The government can play an important part in endorsing good business practices so that the concept of corporate social responsibility can evolve and play a big part in the growth of many businesses.
In conclusion, for corporations to be socially responsible their needs to be a balance between the idea of making a profit and improving employee morale. CSR can help improve a lot of aspects of the business including the market size for businesses to grow, they can incentivize customers to pay higher prices for products and services, help attract new investors, and improve the competitive edge over other companies. Equal contribution from all these avenues can help take skyrocket businesses to a whole new level of profitability.