Essay on Corporate Social Responsiblity

Submitted By igothere
Words: 1456
Pages: 6

The concept of Stockholder theory has become a widely arguable used tool for strategic management that contradicts that the responsibilities of business management are generally interpreted as an assertion in favor of profit above all. For many, the view that purpose of a corporation is to make a profit for stockholders is beyond debate and is accepted as a matter of fact (Arnold, Beauchamp & Bowie 2013). The classic view or observation to any corporation is that their primary goal is to maximize profits and Friedman’s theory argues for that view. Friedman has two arguments for that theory; first, the core argument rests on private property that is conferred by virtue of its private ownership. Since stockholders are those individuals who own a corporation or a part of corporation; hence corporate profits belong to stockholders. Managers are employed as the agents of stockholders to run their corporation to their interest that is to maximize the profit. Therefore, this view was stated in the prominent passage in which Friedman (1970) stated, “there is one and only one social responsibility of business- to use its resources and engage in activities designed to increase its profits”.Secondly, stockholders are entitled to their profits as a result of a contract among corporate stakeholders (Arnold, Beauchamp & Bowie 2013). Stakeholders include employees, managers, customers, suppliers, the local community and the stockholders who are all responsible for the result of the product or service being produced. In return of each of the stakeholders’ services, they are paid, for example managers and employees are paid in wages; the local community is being paid through taxes; suppliers are being paid with regards to the demand and supply, and at last the remaining funds should represent the profit belonging to stockholders as they are receiving it in return for their risk taking in the business.
Friedman’s claim is that these voluntary contractual arrangements maximize economic freedom and that economic freedom is an essential condition for political freedom. Ultimately, the existence of capitalist markets limits the number of politically based decisions and thereby increases freedom. In addition, Friedman’s arguments assume the reality of a vigorous democracy in which citizens regulate the rules of the game and businesses do not effect the progression by which those rules are determined.

The core of Friedman’s arguments rest on corporations’ obligation that is only to profit maximization for stockholders, signifying business engaging in sole endeavor of profit maximization will inevitably promote social good, and that’s where the fundamental objection is strong because within that literature corporations have responsibilities to society beyond profit maximization (Rowley and Berman 2000), that includes not only shareholders, but also employees, competitors, consumers, suppliers, communities, governments and the natural environment itself (Arnold, Beauchamp & Bowie 2013). As illustrated in the modern world businesses hold large amounts of power, the question of morality and moral truth is asked. An example can be drawn from the announcement recently made by Telstra, that the company will be slashing eleven hundred jobs with possibly more in future time (Wilkins 2013). However, Wilkins (2013) reported that for the past five years Telstra have had three billion dollars as annual profits, so the question comes why cut of three percent of Telstra’s thirty thousand Australian workforces? Telstra chief operations officer Brendon Riley stated that cuts would allow the company to grow other areas of its business, in other words it means the importance of shareholders are being put before the workers, meaning the obligations meeting their interest, ultimately the intent of maximizing profits as to the argument made by Friedman. The action made would absolutely create value for the company to be more profitable,