Profit Maximization and Corporate Social Responsibility
Over the past few decades’ American companies have been obsessed with maximizing profits. This obsession has resulted in big businesses having some of the highest profit margins in history. To shareholders, this news couldn’t be better. But many times these high profit margins have come with a great price, and it is not the businesses that are paying for it. Milton Friedman’s famous article The Social Responsibility of Business is to Increase Profits, is considered by many to be the seminal piece of literature against corporate social responsibility. In his article, Friedman argues in favor of unrestricted profit maximization. While Friedman’s argument makes valid points discussing ...view middle of the document...
Friedman’s belief that executives who practice CSR are “…unwitting puppets of intellectual forces that have been undermining the basis of a free society these past decades. (31)” He goes to explain how people have responsibilities, not businesses, and that the responsibility of the executive to the business is to increase profits for shareholders (his employers). Friedman’s builds his argument by first explaining that businessman exercising CSR in their business situations is undemocratic because they were not elected to decide how to spend the shareholders money on social agendas, essentially “taxation without representation”.
While Friedman makes many valid points on a businesses structure, and the roles of individuals within the company, I believe he does not appreciate the value of CSR to a business. While researching different opinions on the benefits of Corporate Social Responsibility, I found Peter Drucker to have a better understanding of the value of CSR in today’s business world.
Its very theory itself is flawed market being socially efficient duties of business executives is flawed on the basis of shareholders only concern being profit. I will discuss my thoughts on why profit maximization theory is socially inefficient viand the negative externalities businesses impose on society should be addressed is incorrect and that social responsibility should be exercised through ethical codes, Socially inefficient and should be on the nature
One of Friedman’s arguments and stating “a corporate executive is an employee of the owners of the business. He has a direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible…”