A Critical of Friedmans Belief on Business Social Responsibility - Literature review Example

A Critical Review of Friedman’s Belief on Business Social Responsibility A critique of Friedman’s Belief There have been arguments over the years whether a business should be socially responsible. Some scholars such as Friedman argued that the social responsibility of business is to increase profits. By definition, business social responsibility refers to a set of obligations that a business has to its stakeholders (Schwartz, 2011). There are different views on why a business should be socially responsible; some of the arguments are that a business creates problems and, therefore, it should assist in solving them. A business is said to have the resources to solve today’s complex problems. The scholars believe it is people who give business work and, therefore, they should reciprocate. A business should invest in today’s society for tomorrow’s profit, also being socially responsible is a moral obligation and the society expects the business to be socially responsible. In addition, they argue that a business is a partner just like the government in the society and, therefore, it should be socially responsible. Friedman asserted that the social responsibility of the firm is to increase profits while engaging in fair competition without deception or fraud. He argued that, owners of a business employ executives to run business on their behalf. This means the executives are agents who are supposed to fulfill the interests of principals who are the owners of the business. The main goal of the owners (shareholders) of a business is to maximize their wealth. The executives have to ensure the actions they take will increase the wealth of their employers. Social responsibility for business will mean taking part of the earnings entitled to owners and use them to benefit the society. This is the complete opposite of the goal of a business; it means robbing the owners, which is not right (Schwartz, 2011). If the executives of the firm are compelled to be socially responsible and fulfill duties external to the firm, agency conflicts are likely to occur. Some of the acts of social responsibility they would be required to fulfill include cleaning the environment, donations, constructing schools for the less fortunate in the society among others. All these activities require money, which the executive can obtain from customers by increasing prices of goods and services, from employees by deducting their wages or from owners by reducing their earnings. However, if the executives do this, then they will not be acting as employees of the company anymore but as public servants who collect the money and decide how they will be used. This conflicts the whole idea that executives are employees in a business. If the executives decide to reduce environmental pollution by spending an amount beyond that set by owners, or are to hire workmen who are less qualified to reduce the unemployment level, they will be spending someone else money for the general interest (Mullerat, 2010). The executives are also individuals who have feelings, consciences and interests for their family, church, club and country. They can choose to spend their money voluntarily to help the society but in this case, they will not be robbing anyone. However, when doing this they are not serving as business executives, but rather as individuals. This can be referred to as social responsibilities but as principals and not agents in the business. The executives are spending their own money as individuals and not as business executives. To argue that business executives can act socially responsible in their role as businesspersons’ means acting against interests of their employers. The owners, employees and customers, can exercise social responsibility in their own right as citizens of a given country. If the executives exercise social responsibility on their behalf, they will not be acting as agents of the owners, clients or employees; instead, they will be spending money contrary to the wish of their principals (Trevina & Nelson, 2010). The case of a sole proprietor is somewhat different because the owner of the business will be spending money in his own right. Sole proprietors have the right to spend their money the way they want; after all, they are acting as individuals and not agents. However, sole proprietors can affect their customers by increasing prices to raise money for social responsibility, but this is rarely expected to happen because they are not monopolies. Based on the above arguments, Friedman concluded that the social responsibility of business is to make as much profit as possible while adhering to the basic rules of society, both those embodied by law and those embodied in ethical custom (Schwartz, 2011). Friedman’s theory seems realistic if not analyzed keenly. However, after going through the theory thoroughly one will discover that it does not contain the gospel truth. Friedman looks at reasons why a business should not be socially responsible but does not consider why and how a business can be socially responsible. The arguments raised in the theory of why a business should not be socially responsible are outnumbered by the reasons why a business should be socially responsible. The theory argues that for a company to be socially responsible, it amounts to theft of shareholder wealth. This is not true because if a business is socially responsible, it is possible to establish good will in the society and the end, the business will earn higher returns for its owners through increased number of customers. Friedman’s opinion is a very short-term view of the benefits of corporate social responsibility. A business should invest in today’s society for tomorrow’s benefit (Mullerat, 2010). Friedman also argues that businesses are not directly responsible to the society and they should not be socially responsible. This is also not true bearing in mind it is people in the society who allow business to continue operating; without the society, business could not exist. In addition, if the business behaves in a socially responsible manner, it is likely to enhance its public image, which only serves to its advantage. A business is a partner in the society just like the state and the argument that they are not directly responsible to the society should be dismissed. Firms create most of the challenges facing the society such as water and air pollution and so they should be involved in solving them. There is no way the cause of the problem can deny being responsible (Schwartz, 2011). Arguing that business lacks the social skills to tackle society’s problem is missing the point. A business has the resources needed to solve today’s complex problems. The best brains in the society are in business, they have the required work force to solve the problems facing society. In terms of financial resources, the net income reported by companies at the of an accounting year, massive investments in technology, the salaries paid to working force, all these illustrates the financial muscles of business. To solve problems in the society does not necessarily mean going into the field and start solving issues, rather business can hire the expertise in various fields to solve the problems (Trevina & Nelson, 2010). The statement that a business should be socially responsible does not mean to the society alone but to all its stakeholders who include shareholders, employees, customers, society and the government. A company can be socially responsible to shareholders by paying dividends on time, informing them about the business progress and safeguarding shareholders investments or properties. The business can be socially responsible for its employees by providing fair compensation, providing equal opportunity for growth and development and providing a chance for participation in the decision making process. To employees, the business can be socially responsible by providing quality goods and services, provide goods and services at fair prices, providing adequate and honest information of goods and services and ensuring an adequate supply (Mullerat, 2010). A business can be socially responsible for the society and government. This can be attained by being an agent in tax collection such as deducting salary at source on behalf of the state. It can also be achieved through observing government practices and ideologies such as practicing affirmative action in hiring, promoting of weaker sections of the society and paying taxes like any other good citizen. If a business observes all these in running its daily affairs, it is said to be socially responsible. Being socially responsible is not as difficult as Friedman would put it. Business should try to do more than just increasing the earnings of their owners; they should also strive to fulfill the interest of other stakeholders and by doing this they will be considered as socially responsible (Trevina & Nelson, 2010). Ethics is considered rules of conduct or principles of morality. Business ethics refers to rules about how companies and their employees ought to behave. All organizations should exercise ethics for the betterment of society and their survival. Businesses that exercise ethics attract customers to purchase their goods and services and thus boosting their sales and profits. Employees of such companies want to stick to their jobs and thus limit labor turn over and thus higher productivity. The most talented employees also want to work with the business and, therefore, they apply reducing recruitment cost. Investors are also attracted by such a business and they are likely to invest in it, driving the share price up. Unethical behavior, on the other hand, damages the reputation of the firm and makes it less appealing to the different interested parties (Mullerat, 2010). In the recent past, however, business ethics have been affected by globalization. Globalization refers to the integration of people from various parts of the world. This has been enabled by the low transportation cost, low communication cost and availability of internet. With globalization, many problems such as terrorism, unfair competition, diseases have been able to cross a country’s boundaries. Environmental laws and labor laws have become hard to reinforce in this globalization era. The main ethical concern of globalization is that the poor get poorer and the rich get richer. According to UN reports, the gap between the rich and poor countries is continuing to widen. The gap in people’s income within a country is also widening. Despite the shortcomings of globalization, it is still essential for companies to practice business standards because of the benefits associated (Trevina & Nelson, 2010). References Mullerat, R. (2010). International Corporate Social Responsibility: The Role of Corporations in the Economic Order of the 21st Century. New York: Kluwer Law International Schwartz, S. M. (2011). Corporate Social Responsibility: An Ethical Approach .New York: Broadview Press Trevina, L. K. & Nelson, K. A. (2010). Managing Business Ethics. 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