The paper "Validation of Milton Friedman View of Profit Maximization" is a good example of management coursework. According to Friedman (1970), a business sole social responsibility is to revenues for its stakeholders. Over the past few decades, many have supported that idea that the business should be solely based on achieving shareholders returns. Currently, businesses have emphasized on corporate social responsibility compared to the exclusive focus on profit maximization. However, CSR is perceived as a way of increasing profit maximization. Friedman argues that directors should act in a way to maximize shareholders profit.
A manager should not divert the company funds to in a manner that is not approved by the shareholder, as it would be termed as a breach of fiduciary duties as an executive (Schwartz & David, 2012). The manager is solely responsible to the shareholders who have entrusted their money for the exclusive purpose of increasing profits. However, advocates of CSR argue that business should have a broader set of duties than just making profits (Christopher, 2009). However, Freidman deception and fraud are prohibited in pursuit of profit. This paper will indicate the situations where Friedman's view holds that the only social responsibility of business is to increase stakeholders' revenues by staying within what he refers to 'the rule of the game. ' Friedman Milton has set two broad arguments, the fiduciary duties and argument against business taking on social responsibilities.
Friedman view may be a strong theory in defending business goal of profit maximization, but in some situation, it may have some weaknesses that should be resolved if it should be regarded as a viable alternative to broad CSR. Profit Maximization and Social Responsibility The aim of any business, excluding nonprofit organization is to make profits (Hammond, 2003).
However, it may have a social function with specific purposes. Profit or loss tell the business owners or shareholder how the company is performing in meeting the needs of the society. When business starts making losses, it may fail along with the functions it was performing (Butler, 2011). According to Friedman, profit maximization is the only role, and the executive fiduciary duties were given to the shareholders. Therefore, if an executive acts willingly against shareholders responsibility to seek profit, he would be in a breach of his fiduciary duties.
For example, a manager may get a proposal from a local charity to donate money to provide some basic need for homeless or to help clean up the city. However, there is no benefit in this doing. A manager is contractually bound to the employment contract and not to divert the corporation funds, as this would be regarded as theft. They would be said to have failed in their primary duties. The only way business increase profit is by providing value to their customers.
In other words, businesses benefit society, hence acting responsibly. However, Friedman indicates that profit must be obtained without the initiation of force. According to him, there is one social responsibility of business to increase profits as longs it stays within the rule of the game. In other words, engage in business without deception or fraud. For instance, Enron corporate manager hides the company debt through creative financial reporting to keep the prices of stocks high and ensure people continues to invest in the company.
Unfortunately, when the scandal was discovered, and the company stocks fell from 90 dollars to 4 cents. Freidman argues that deception and fraud should not be used in the pursuit of profit. Enron company behaviors are acceptable in the pursuit according to Milton Friedman view of social responsibility. He argues that the social responsibility of a corporation is to earn revenues for its shareholders, which is a crucial responsibility with vast consequences. A company stakeholder includes people who invest in company stocks in order to earn profits.
The scandal also affected the employees who lost their jobs. Making profits without initiation of force is what open, and free competition without the deception or fraud is built on.