Review of Milton Friedman's essay 'The social responsibility of business is to increase its profits.'

Write a critical review of Milton Friedman's essay 'The social responsibility of business is to increase its profits.'
Milton Friedman (shareholders theory) talks about egoism. He is not against CSR, but his approach to CSR is wrong.
1. What is Friedman asking us to accept or reject?
2. What perspective is he arguing from?
3. Are his arguments persuasive enough in today's business environment?
4. Arguments in 1970, do they still stand and if they changed then how so?
5. What are the alternatives to Friedman's views?
(alternatives can be Milton freemans stakeholder theory or CSR)
6. How do these alternative theories align with sustainable business practices?

Introduction 250 words

Coverage of issue 2200 words, including questions
Conclusion 100 words
No need of table content
References 15
Explained eassy with sources

Introduction

The current essay is the analytical and critical examination/assessment of one of the imperative statements that the social responsibility of the firms is only increasing the shareholder’s wealth at the overall level, as proposed by Milton Friedman. The core theoretical framework or models used in this regard include the principal-agent model, shareholder theory, and framework of Carroll’s pyramid approaching the critical component of the economic growth of the business with increased productivity. However, another argument that is logical, analytical, and subjective in this regard is proposed by Freeman. He convinces the inclusion of significant stakeholder benefits with the stakeholder model and sustainable business operations about the essential development of taking care of all the critical stakeholders in the business. In the current argument used in this essay, a critical model needs to be considered: the three-domain model aligning with ethical, legal, and economically sustainable business practices.
In contrast, the TBL approach is called the Triple Bottom Line framework. It is imperative to be considered in this discussion which includes the involvement of the plant, people, and environment to develop sustaina efficiently develop sustainable distinctive business operations in the long term rategic and elementary choices of ethical, legal, and economic considerations for effective business practices.
Utilitarianism
The school of utilitarianism seconds the idea of making more profit without considering society’s needs. According to Makower (2011), the promoters of utilitarianism reflect the activities of management utilising the principles of ethics and morality. As per utilitarianism, the magnitude of a doing is perceived ethical if they provide more profit than harm. Narrowing it down, economic utilitarianism advocates that activities that generate greater profits should be considered, unlike those that generate fewer profits. Additionally, Teece (2010) states that cost-benefit analysis is the core criterion in most business operations. Kim, Park, and Wier (2012) denote that if a business adheres to Friedman’s school of thought, an entity's social responsibility is to make a profit. Consequently, actions are evaluated by both their earnings and costs; it would be coherent from the utilitarian school that the best ethical efforts are one that maximises profits.
Additionally, ethical egoism can be a ground for defending the capitalist form of business (Barrow, 2015). As per this principle, if the measurement of the actions majorly focuses on the firm’s long-term objectives, and the decisions result in a mighty proportion of sound compared to the bad, the action would be considered ethical and moral (Mulgan, 2014). Therefore, if increasing a firm’s profits would be a long-term action, this action would be considered ethical. However, most accounting scholars think the contrary (Renouard, 2011). Accountants are made to think that a successful or good business makes more profit. Additionally, much emphasis is based on the validity and accountability assumed by the financial statements provided to the public (Peloza and Shang, 2011). Conversely, the accountability and reliability of these financial statements cannot be accredited to some extent as these reports, for example, the kind of environmental damages the business incurred or if the business decisions by the managers are unethical (Hairy, 2013).

Shareholder and Principal Agency Theories by Friedman

According to the shareholder theory presented by Freidman, the ultimate purpose/objective of the businesses is the maximisation of shareholder values. Especially for the investors who invested heavily in the company, it is the complete responsibility of employees to return or pay back to all those investors. The corporate executive or the employee of a specific firm is responsible for performing actions/business operations per the core desire, which is making maximum revenues for the owner/employer of the organisation. It is to accomplish under specific rules of society following legal/law and ethical domains. Therefore, according to the principal-agency theory integrating the arguments of Friedman, a manager is the agent of the principal or employer of the company. According to principal-agency theory, corporate governance is the central element that manages or controls systems and organisational structures with an honest centralised approach. It defines or separates management and ownership as two different subjects/entities. At the same time, ownership/decision-making is directed to the business’s employer/principal/owner. At the same time, an agent is concerned with the manager hired to handing for core activities of the business. According to Friedman's theory, an increased level of accountability is put on the employees and managers to achieve the ultimate goal of maximising shareholder values.
Carroll’s Pyramid Model (Economic) Supporting Friedman’s Theory
According to the pyramid framework/model proposed by Carroll, the imperative element that supported the argument of Friedman is an economic factor. It is the required consideration of accomplishing economic gains aligned with societal or community expectations in which many stakeholders perform business. One of the essential considerations of Carroll’s pyramid model is to remain profitable for all businesses to survive. At the same time, it can be accomplished/achieved through the maximum target or sales volume that will ultimately increase the business’s productivity level. It creates the point where a firm can achieve the enemies of scale and ultimately allow the employers/owners of the business as primary shareholders to minimise the net cost incurred from performing imperative business operations to run smoothly. Although, the critique of this model argues that the economic element of Carroll’s model fails to analyse the complete view of the economic impact as it is not the only critical factor to be considered in the business. For example, the economic domain in this pyramid model does not cover the other essential economic activities in a comprehensive manner that could be analysed, such as trade-offs, opportunity costs, human development, or other factors. However, this model only focuses on profit maximisation and maintaining a competitive position in a fierce marketing environment at any cost.
Shareholder’s Model and Elaborating Examples of Three Companies
The shareholder model, as defined by Freidman, is the organisational/business framework in which the critical shareholder, such as the owner or employer of the company, is involved in the decision-making. Although, due to tight control or scrutiny of the beneficiaries, investors, and board of directors, the reduced level of risks and enhanced innovation or entrepreneurship are developed for the firm. However, key challenges still exist, such as vulnerable monitoring from directors or principal roles with short-term objectives and the lack of a structured role for the organisational investors. The first example of a company that fits in this perspective is Enron, which fails to concentrate on the essential elements such as corporate governance suggested by Friedman in principal-agency theory. The ethical scandal occurred within organisational operations because Enron ignored the significance of corporate structure or organisational governance model of accountability. It badly exposed the principal (board of directors) and agent (managers) theory.
The example of the second company in this regard is the Shell Corporation, which once followed the shareholder model of maximising the returns for the company’s key investors. The other example is Nike Inc., with child labour or other unethical practices focusing only on profitability, asset management, and attaining a high rate of overall shareholder returns. In contrast, the corporate social purpose was missing for this specific company due to only concentrating shareholder’s model of Freidman. The last example of the company implementing vital elements of the shareholder theory or model is Wells Fargo which became the victim of the ethical scandal of opening fake accounts due to misleading/implementing the principal-agency relationship theory. Agents or managers on directions to accomplish specific financial objectives given by the principal or company’s directors resulted in bankruptcy for this financial intermediary.
Stakeholder Model Supporting Freeman’s Theory using Carroll Pyramid and 3-Domain Framework.
The theory of, Freeman argues that the corporate objective is beyond making profits as it also includes taking care of imperative stakeholders such as employees, community, environment, customers, government, and others. Carroll's pyramid framework used legal, ethical, and philanthropic approaches. The legal consideration is obeying laws or regulations to perform central business practices; ethical considerations are avoiding unethical business activities, operations, or processes while performing fair, right, and just practices. At the same time, philanthropic consideration is becoming a good or effective corporate citizen by returning to society with monetary/financial support. On the other hand, another critical stakeholder model supporting Freeman’s argument is built on three key dimensions. The ethical element is fulfilling the responsibilities utilising moral standards applicable to the public based on conventional, deontological, and consequentialism theories. The legal dimension builds on organizational responsiveness, attitude, or behavior to comply with legal regulations approved by regulating authorities. The economic dimension builds on the critical framework of attaining positive economic impact through profit maximization, increasing shareholder value, and considering other economic activities.
CSR and Triple Bottom Line/TBL Theory
Profit, people, and planet are essential factors of Corporate Social Responsibility /CSR based on the Triple Bottom Line/TBL framework or approach. The performance metrics are oriented using their significant dimensions of economic, environmental, and social considerations. These are crucial business pillars with sustainable economic growth, social progress, and environmental stewardship as core business operations/practices. Corporate social responsibility is a pillar that is based on bearable, equitable, and viable business activities. People are aligned with social variables in essential business functions with community social resources, education, and quality of life. Profits are associated with economic variables with sustainable cash flows. Planet dimension is integrated with sustainable environmental factors with improved green business operations having air quality or water, conservation of energy, land, or other natural resources.
TBL’s strategy is coordinated with the CSR business practices for accountability, transparency, and creating a positive impact through global reporting initiatives. Sustainable business operations are oriented with social elements based on people or human resources. It includes efficient labor practices, positive community impact, and enabling product/service responsibility. Environmental or planet consideration is developing eco-friendly business processes with improved water and air quality aligning with efficient energy usage in operating essential business functions. Economic profits considerations are increasing sales, Return on Investments/ROI while paying necessary income taxes and creating appropriate or balanced cash flows with increased chances of employment.