The Purpose Of Corporation

Submitted By jennijoe
Words: 1174
Pages: 5

September 27th, 2012

What is the Purpose of the Corporation?

According to Milton Friedman, “The Purpose of a corporation is to make profits for its shareholders.” There are many aspects of a corporation, however, the topics in which I will cover consist of Friedman’s views and arguments concerning social responsibility of a business, morals responsibilities of business managers, Freeman’s issues with Friedman’s views, touching on a few case studies to relate, how corporations make society better, tasks in which corporations fail to do, and lastly, comparing the examples to moral responsibilities of business managers. According to Friedman, social responsibilities of business are to make profits and adding value to all stakeholders. Friedman stated that, “there is only one social responsibility of business to use its resources and engage in activities designed to increase its profits as so long as it stays with the rules of the game, which is to say, engages in open and free competition with deprecation or fraud.” According to Friedman, business managers are the agents of the stakeholders who own the corporation and their primary responsibility is to them. The moral responsibilities of business mangers is that they need to follow the wishes of these owners. One of the most vital moral responsibilities of managers is that they need to be sure that the business is operated in accordance with the law and established moral customs, which are the two basic rules of a society. According to Freeman, there are a few things wrong with Friedman’s views. His first issue is that when business managers go against the law and establish ethical customs to purse profits, their needs to be set limitations of profits. The goal of business managers is to get as much profit as they can for the stockholders, therefore, all that matters is profits, yet there are many more factors that need to be considered such as pollution and illegal activity. An example may be if a paper mill company decides to illegally dispose of their waste in the river, due to the fact that is it much more cost efficient versus disposing the waster properly. Some businesses will risk the illegal activity for the profit of their stockholders. If the fine of illegally exposing the waste is cheaper then properly disposing of the waste, then the business will make more profit with illegal actions. This is a serious concern, because at the expense of profits, businesses are not only breaking the laws and getting away with it, by no serious consequences being enforced, they are severely polluting out planet, which in turn causes many more serious issues, which cannot be reversed. The first case study I wanted to touch on is, The New York State electric and Gas Corporation (NYSEG) Responsibility Program. NYSEG services over a million people for electric and gas services, yet they are not a normal corporation. They wanted to fulfill what its officers considered to be the company’s social responsibility to its public and consumers so they created a program to aid customers who are unable to pay their utility bills, the main requirement is that they customer(s) suffer from hardships that they are willing to work to resolve.” . (Beauchamp, pg 120) They as well give out grants. Now many may ask, well how can this corporation afford this? Well the cost of NYSEG for the programs involvement is invaluable by how they help their community, nevertheless it is paid for from the company revenues, and all expenses are treated as operating expenses. Their bad-debt is twenty percent lower with this program, as well the company, “believes that its responsibility as a corporations is both altruistic and good business, despite the program’s maintenance cost.” (Beauchamp, pg 122) In addition a priceless advantage is that this program build excellent customer relations, which in turn is what makes their business profitable, therefore their shareholders are happy.