In order to fulfill social responsibility, a business has to meet its ethical, environmental and economic obligations. By ignoring or failing to meet one of the aforementioned obligations, a business may not be regarded as acting in a socially responsible manner. The current paper presents the argument that making profits is not the only social responsibility of business. The argument rejects Milton Friedman’s argument posted in the New York Times Magazine on September 13, 1970 that the only social responsibility of a business is to make profits (Friedman, 1970). In other words, the paper seeks to show that meeting the economic obligation is not the only social responsibility of a business.

Argument

Friedman gives several points in support of the argument that the only social responsibility of a business is to maximize profits. According to Friedman, it is not the responsibility of a business to promote some social ends such as cleaning the environment and employing people from the surrounding communities (Friedman, 1970). According to Friedman, a business is not like a human being, and thus, it cannot be given ethical responsibilities. The business is like weather or the internet, which do not have responsibilities. On the other hand, a human being can have social responsibilities. A manager, for instance, can be assigned the responsibility to ensure that employees are working in good conditions. In this regard, a business is a general system that does not have the ability to meet ethical responsibilities.

The above inductive argument is not strong enough to oppose the argument that profit maximization is not the only responsibility of a business. Although the argument is supported by logical facts, it does not show a clear disconnection between a business as a general system and the people who operate it (Du, Bhattacharya & Sen, 2010). In other words, the argument fails to acknowledge the fact that the managers, workers and other internal stakeholders are part of the business, and their actions are considered as the actions of the business. For instance, when the workers produce poor quality products the actions are attributed to the organization, and not the individuals (Obalola & Adelopo, 2012). In short, a business cannot be simply understood as general system that does not have responsibilities.

Secondly, Friedman acknowledges the fact that there are cases where a business can be treated by law as an artificial agent or individual. In such cases, the business may be assigned legal responsibilities. According to Friedman, a business is treated that way for specific legal purposes. For instance, a business may be treated as an individual when seeking funds from new investors (Friedman, 1970). However, according to Friedman, that is just an assumption. In this regard, Friedman concludes that treating the business as an agent or an individual does not imply that it can have responsibilities like those of a human being.

Although the above inductive argument is supported by a strong logical reason, it is not convincing enough as to why a business should not have social responsibilities. The argument ignores the fact that the law itself treats a business as an individual or agency in cases where responsibility is needed. In fact, the business law recognizes the relationship between the internal stakeholders and a business. For instance, the common law of negligence stipulates that a business is held responsible for the negligent acts of employee, manager or executive that occur while performing job duties (Du et al., 2010).

Friedman acknowledges that organizational managers are individuals who can have social responsibilities. However, according to Friedman, managers are only responsible to fulfill their mandate given by their employers or investors. In particular, the managers are only required to manage resources in a way that ensures that the shareholders gain the expected profits. When a manager decides to focus on social responsibilities such as cleaning the environment and employing people from the surrounding community, it implies that one is spending investor’s money in pursuing their goals (Friedman, 1970). Consequently, the market mechanisms convert into a political process. According to Friedman, there are no specific standards for guiding the managers on how to fulfill some ethical obligations. Consequently, many of them just rely on their beliefs, a move that may not have a genuine social purpose. In this regard, Friedman concludes that the only social responsibility of managers and other internal stakeholders of a business are to maximize profits (Friedman, 1970).

The above inductive argument is weak since it fails to give convincing reasons why managers and other internal stakeholders should not have social responsibilities. The argument ignores the fact that a business cannot live in isolation; its economic efficiency is affected by all stakeholders, the environment and social, cultural and technical variables. At the same time, there has been a rising pressure from all stakeholders for businesses to become more responsible for their actions. Further, the argument ignores the contribution that adhering to social responsibility has on the profits. There is a positive link between adhering to social responsibility principles and business performance (Du, Bhattacharya & Sen, 2007). As such, adherence to social responsibility implies that the profit is likely to rise.

Counterarguments

Friedman’s model of focusing on the profits only is not sustainable in the long-run. By focusing on profits only, a business only protects the interests of the shareholders. However, the business has other stakeholders that make a significant contribution to its existence, including employees, customers, suppliers and government agencies. Failing to respect and to protect the interests of such stakeholders is likely to affect the overall performance of the organization. For instance, underpaying the employees may lead to dissatisfaction, lower level of output or strike. Selling faulty products may have a negative impact on customer’s trust and brand (Saeed & Arshad, 2012). Further, failing to adhere to the environmental standards may lead to probes, fines of closer by government agencies. Such issues affect the output and preference of an organization’s product by customers. In short, implementing the Friedman’s recommendation to support the interests of the shareholders will only lead to lower returns in the long-run or failure. Examples of companies where the recommendation has been implemented are Bernard Madoff, Stanford Financial Group, US Banking System, US Housing Market Crash and Enron. In all the aforementioned organizations, Friedman’s model has led to failure (Saeed & Arshad, 2012). As such, the ultimate objective of the model, which is to maximize profits, is not met in the long-run. The presence of real examples of organizations that have implemented Friedman’s model makes the above deductive argument valid and sound.

Secondly, adhering to all aspects of social responsibility leads to success. In other words, meeting the interests of all stakeholders helps to support the economic performance of an organization in the short- and long-run. Respecting the interests of workers and enhancing their welfare helps to increase their performance. For instance, giving satisfactory remuneration and rewards to the employees motivates them to work hard and to produce more quality work. Meeting the interests of the customers enhances their trust and loyalty (Obalola & Adelopo, 2012). Eventually, their preference for the organization’s products increases. The move helps to support customer retention and to attract new ones. As the customer base increases, the returns to investment also increase. In the same vein, supporting surrounding community and meeting environmental obligations helps to enhance the reputation of the organization and its products. Organizations such as Dell, Starbucks, CocaCola, Nike, Google and IBM have risen from insignificance to successful international organizations through adhering to the social responsibility obligations (Du, Bhattacharya & Sen, 2010). The above deductive argument is valid and sound, given the fact that the aforementioned organizations have utilized all social responsibility principles to enhance their reputation in the public. In turn, the enhanced reputation has propelled them to attain success.

Conclusion

In conclusion, profit maximization is not the only social responsibility of a business organization. Friedman’s model is based on the argument that profit maximization is the only social responsibility of an organization. Although Friedman’s argument is based on good logical reasons, it is not compelling enough to oppose the argument that profit maximization is not the only social responsibility of a business. Friedman’s argument ignores the contribution of the stakeholders to its performance.

References

Du, S., Bhattacharya,C.B. & Sen, S. (2007). Reaping Relational Rewards from Corporate Social

Responsibility: The Role of Competitive Positioning. International Journal of Research in Marketing, 24, 224–241

Du, S., Bhattacharya,C.B. & Sen, S. (2010). Maximizing Business Returns to Corporate Social

Responsibility (CSR): The Role of CSR Communication. International Journal of Management Reviews, 12(1), 8-19

Friedman, M. (1970, September 13). The social responsibility of business is to increase its

profits. The New York Times Magazine. Retrieved from

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.htm

Obalola, M. & Adelopo, I. (2012). Measuring the perceived importance of ethics and social

responsibility in financial services: a narrative-inductive approach, Social Responsibility Journal, 8(3), 418 – 432

Saeed^, M. M. & Arshad, F. (2012). Corporate social responsibility as a source of competitive

advantage: The mediating role of social capital and reputational capital. Journal of Database Marketing & Customer Strategy Management, 19, 219–232.

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