Friedmans Narrow View of Business Ethics vs. Stakeholders Theory - Coursework Example

Friedman’s narrow view of business Ethics vs. stakeholder’s theory Name Professor Institution Course Date Friedman’s narrow view of business Ethics vs. stakeholder’s theory Introduction Business ethics are a professional ethics that look at ethical standards and moral problems that comes up in a business setting. It takes place to all facets of business behavior and is applicable to the behavior of people and whole organizations. For several years individuals conducting have been identified with a ruthless reputation of which they justify as a way of succeeding. 'Greed' or materialism is frequently mentioned as the sole driver of life of business, therefore much of business ethics history is as a result is not very pleasing to course (Bartkowiak, 2006, p. 136). Business ethics is not any longer concerned primarily with the criticism regarding the business and its practices. Profits are not any more denounced together with materialism in moralizing talks and businesses are no longer envisaged as faceless, utilitarian and amoral monoliths. The fresh concern is only how profit ought to be thought considered of in the bigger perspective of output and social responsibility. One of the people who famous economist who believes the sole purpose of business is to make profit is Milton Friedman. He thinks that the managers have the right to increase the profit at the confines of the law (Friedman, 1970). On the other hand Edward Freeman in his theory “Stakeholder theory” believe that the organizational leadership and business ethics have other responsibilities of upholding morals and values in business. Some people believe in Friedman's ideas while others believe in stakeholder theory. Is it possible that both can be right and wrong? Friedman’s narrow view of business ethics The main concept of the recent business ethics is the notion of social responsibility. This is also an idea that has infuriated numerous traditional free market fanatics and led to a number of dreadful or misleading claims. Possibly the most recognized of these is the argument by economist Milton Friedman in The piece titled 'The social responsibility of business is to increase its profits'. In this article (1970) he say that, "There is only one social responsibility of business, which is to employ its resources and take part in activities created to enhance its profits provided that it remains within the rules of the game, that is, to engage in clear and free competition with no fraud or deception". Friedman was trying to demystify the idea, beginning to gain grip at the moment, that organizations and their managers encompass a responsibility to take action increasing social welfare, irrespective of the law on the matter at hand whether that matter be discrimination and pollution. In this article, Friedman referred businessmen who supported the concept of corporate social responsibility as 'unwitting puppets of the rational forces that have been destabilizing the foundation of a free society' and blamed them of 'preaching pure and unadulterated socialism' (Friedman, 1970). His claim is, basically, that managers of the organization are the workers of the shareholders and, per se, have a 'fiduciary duty to increase the profits. He argues that offering money to social causes or charity (apart from as public relations intended to increase business) and being engaged in community projects that do not maximize the corporation's profit is similar to robbing from the shareholders. In addition, there are no grounds to presume that a business or its executives hold any special knowledge or skill in the sphere of public guiding principle, and therefore they are going too far of their capability over and above violating their responsibilities when they engage in community events at managers and not individual agents (Cummings & Doh, 2000, p.94). Some of the misleading notion employed in such reasoning is resulting from the narrow 'profit-minded' opinion of business and the particularly critical and out of reach of one-dimensional portrayal of the shareholder. Friedman thinks that social responsibility is not supposed to be enforced by the state (Lenkowsky, 2006, p.48). While the majority of economists concurs with this idea, several believe that he could have gone too far by claiming that it is the corporation's sole social responsibility. Corporations can still uphold their effective path whilst practicing various methods of social responsibility concurrently. Stakeholder’s responsibilities can be realized whilst helping to build up the society. For instance, an organization can carry out research to offer safer products to customers. When claiming that “Corporate social responsibility is a wholesome unadulterated socialism” beeves that socialism is in every aspect evil. Friedman claimed for a direct type of capitalism and in opposition to any action that bends economic freedom (Carson, 2003, p.391). Socially responsible practices carried out by a business are said by Friedman to disrupts economic freedom since shareholders do not have the capacity to choose how they will spend their money. Friedman therefore claims that corporations have to concentrate on those actions that are causally associated with corporation profit, efficiently exclusive of charitable actions that do not openly create revenue (Friedman, 1970). Stakeholder theory of business ethics Stakeholder theory is an organizational management and business ethics concept that deals with ethical and values in corporation management. It was initially written down by Edward Freeman in his Strategic Management book titled “A Stakeholder Approach” (1984). Freeman in this book establishes the stakeholders of a business which he describes and suggests methods by which top management can provide due regard to their demands. In brief, it tries to tackle the "Principle of what or who really matters". The stakeholder opinion of approach is an influential theory of the organization, incorporating both the resource-based opinion in addition to the market-based opinion, and adding up a socio-political intensity. Stakeholder theory thrives in becoming recognized not just in the business ethics discipline but also applied as a major framework in all corporate social responsibility practices (Freeman, 1984). Seen from this perspective, business people and organizations are not a special case. They undergo the problem of settling whether their actions will be on the basis of ethical standards when morals and self-interest come into view to diversify in important ways. They also undergo the challenge of employing ethical values in tough situations where their use is neither apparent nor clear-cut. While Friedman’s narrow view of business ethics is that the sole managers are to make sure that organization maximizes profits within confined law, stakeholder’s theory advocates that effective managers are those that perform well in what managers are intended to carry out (Freeman, 1984). The responsibility of managers is in the sequence described by the purpose and nature of the organization. The purpose of the company on predictable accounts is to increase profits for the individual’s benefit are spending on it and are by account of their investment own the business. Managers, hence, have a responsibility to increase share value for the investor’s benefits. Freeman maintained that business relations should consist of all those who can “affect or be affected by” an organization (Clarkson 1995; Freeman 1984). Several researches on stakeholder theory have hunted to analytically tackle the issue of which stakeholders require the attention of the management (Mitchel & Agle & Wood, 1997). Strategies to this issue have emphasized on relations between stakeholders and organization in relations to power dependencies, exchange transactions and legitimacy claims (Cummings & Doh, 2000). Scholars have tried to incorporate stakeholder theory with managerial point of view, specifically governance and agency theories (Jones, 1995). They recommended a theory of stakeholder recognition and salience with regard to managerial evaluations of stakeholders’ ownership of one of three relationship aspects: power, urgency and legitimacy. Friedman’s narrow view of business ethics vs. Freeman’s stakeholder’s theory What is a morally accountable management? How can an organization, provided its economic objective, be handled with proper focus to moral challenges? These are key questions in the business ethics field. There exist two ways of answering these questions. First, is shareholder theory of management by Milton Friedman and the second is the “Stakeholder” theory of management by Edwards Freeman, two diverse opinions regarding the rationale and objectives of a business. Friedman’s shareholder theory argues that the function of a company is to maximize profit for the stockholders or business owners. Management operation only on the stakeholders’ interest is already considerably confined by laws and economic reason. Therefore, Freeman argues claims that the owners’ argument on a corporation is worth similar to staff’, suppliers’, consumers’ and the societal arguments. Every stakeholder maintains reciprocal relations of delivering and getting resources from the corporation (Rachels, 2002). Friedman claims that the sole social responsibility for a corporation is to apply its resources so as to increase its revenues given that the business stays within the assigned rules, as for instance to participate in free competition and with no conception or fraud. Whilst Friedman believes increasing of owner’s profit as a way of achieving maximum collective profit whilst upholding democratic free will, Freeman claims that keeping stakeholder aims are both required for economic prosperity and profit maximization. Friedman claims that managers have a fiduciary responsibility to the stockholders and the function of the corporation is not to offer jobs, do away with discrimination, stop pollution, assist the community by making the players’ life better (Lenkowsky, 2006, p.48). Friedman considers that business ought to not work as a charitable trust, and should other things rather than making profit to enhance socialism and destabilize democratic society. Friedman believes that corporations should increase their profit, as they hold social responsibility to do so, since “profit actually characterizes the net contribution which the corporation generates with social well being in mind, therefore should be increased as much as possible.” Furthermore, Friedman supposes that market natural constrains will assist keep corporations in control, as for instance is a corporation is regarded as to be deceitful to the staff, then customers will not purchase from that particular corporation. Plausible theory: Freeman’s stakeholder’s theory Freeman (1984) argues that stakeholder is anybody; stockholders, employees, competitors, consumers, the society at large. The corporation is always asking; “For whose gain and at whose price should the corporation be handled?” Friedman did not to understand that asking these sorts of questions could further be final goal of increasing profits. My opinion is that individuals like corporations which are widespread in the society and corporations that assist in the betterment of the society. These forms of contribution offer the corporation a face to continue with their immense business title. Human are creatures which have habits and akin to things they are conversant with. Taking into account group stake such as the local population can eventually be a financial concern. Even though the local population is not an owner by description, there are individuals in it that can become owners (Mitchell & Agle & Wood, 1997, p.866). The Freeman’s idea is not static but consists of a stable reconciliation of stakeholder concerns anchored in particular ground rules (“dogma”) with an intention to guide the corporate constitutions process, same to national constitutions considering every stakeholders with equality. Stakeholder’s theory supports corporate social responsibility. Social responsibility is not an obligatory issue and companies are not forced to participate. However, by being socially accountable, they allow themselves to expand support of the consumer respect, employee’s loyalty and society. Conclusion Whichever theory is adopted, managers must to be clear regarding the preference in organizational objectives. If midlevel executives are confused concerning the corporation’s goals, they will probably make conflicting decisions, possibly by depending on their personal normative beliefs in relation to the suitable theory. While making the decisions they should understand that the stockholder theory is inconsistent with the concept of corporate social responsibility at the expense of the stakeholder while Friedman’s stockholders theory only fights for maximization of owner’s profit. References Bartkowiak, G 2006, Practical Aspects of a Social Responsibility in Business, Dialogue & Universalism, vol. 16, no. 5/6, p. 133-140. Carson, T 2003, Self-interest and business ethics: Some lessons of the recent corporate scandals, Journal of Business Ethics, vol. 43, no. 4, p. 389–394. Cummings, J and Doh, J 2000, Identifying Who Matters: Mapping Key Players in Multiple Environments, California Management Review, pp. 83-104. Freeman, R 1984, Strategic Management: A Stakeholder Approach, Boston, Pitman. Friedman, M 1970, The social responsibility of business is to increase its profits. New York Times Magazine, September 13, 32-33, p. 122-124. Jones, T 1995, Instrumental Stakeholder Theory: A Synthesis of Ethics and Economics, Academy of Management Review, vol. 20, no. 2, pp. 404-421. Lenkowsky, L 2006, Milton Friedman Was Right About Philanthropy After All. Chronicle of Philanthropy, London. Mitchell, R., Agle, B and Wood, D 1997, Toward a Theory of Stakeholde Identification and Salience: Defining the Principle of Who and What Really Counts, Academy of Management Review, vol. 22, no. 4, pp. 853-886. Rachels, J 2002, The elements of moral philosophy, 4th ed., New York, McGraw-Hill. Read More