Social Responsibility of Business Is To
Increase Its Profits
Milton Friedman
• For Market to Be Free
It Must Be Open
(Competition without
deception or fraud)
• Corporation is an
artificial person
therefore cannot have
responsibility
• CEO acts as an agent
not a principal
The primary function of the Executive is
creation of wealth for stockholders,
employees, and customers
• CEO is responsible to
owners
• CEO who spends money on
socially responsible
activities
– Spends stockholders
dividend
– Spends employees
wages
– Spends customers
money
• If A CEO Acts on Social Objectives
– They need to be elected
– They need to become expert in
public policy
• A market when everyone acts in own
self interests keep other people’s action
in check
• The market forces conformity to the
will of society
TEST ONE
Page 1 Through 159
CRITICAL QUESTION?
Will Society Pay a Premium to
Socially Responsible Firms?
If So How Much?
Can Socially Responsible Firms Survive
in a Competitive Environment?
Robert H. Frank
• Response to Milton
Friedman
• Evolutionary Biology
– Higher payoff at
certain times for
altruism
– Commitment when may
not be viewed as serving
self interest
– Will act altruistically if
perceive other person
will
– Over time altruism pays
• Reasons Socially
Responsible Firms Prosper
– Able to solve shirking
problem with employees
because of trust
– Able to solve customer
problems
– Avoid Subcontractor
Holdups, Assure
Quality, and Maintain
Confidentiality
– Attract Customers
– Attract Employees
CRITICAL QUESTION
Why Are American Managers Unable
or Unwilling to Discuss Ethical
Behavior in the Workplace?
Moral Muteness of Managers
Fredrick B. Bird and James A. Waters
• “There is a disinclination of
American business people
to admit they acted
altruistically even if they
did” Alex de Tocqueville
(1800)
• Norms:
– Standards of behavior that
are sufficiently compelling
and authoritative that
people feel they must either
comply with them, make a
show of complying with
them, or offer good reason
why not
MORAL NORMS
• Moral norms are established through “moral
expression.” This creates reality in the
organization.
• Quadrants of moral action and speech
– Talk about moral behave morally
– Talk about morals but behave immorally (moral
backsliding, moral fatigue, hypocrisy)
– Don’t talk about moral behavior and don’t
behave morally
– Act morally but do not talk
CAUSES FOR MORAL MUTENESS
• THREAT TO ORGANIZATIONAL HARMONY
– Whistle blowing, lack of candid performance appraisals,
creates finger pointing
• THREAT TO EFFICIENCY
– Takes away from problem solving discussion
– Moral analysis doesn’t solve problems
– Removes flexible, informal and amendable relationships
(rigidity, rules, and regulations)
• THREAT TO IMAGE AND POWER
– Viewed as idealistic and utopian. May reveal “ethical
illiteracy”
CONSEQUENCES
• Moral Amnesia – Creates the caricature that management is
moral
• Narrowed Conception of Morality
– Maintain neutrality by “stonewalling” moral
discussion
• Neglect of Abuses
– Organization will not recognize and deal with
problems
• Decreased Authority of Moral Standards
– Lack of dialogue creates lack of support of
moral behavior
HOW TO FIX THE PROBLEM
• Create environment that legitimizes
dissent
– Remove blame, criticism and punishment
for expression of views.
• Teach people how to dissent
• Teach people to incorporate moral
discussion into regular expressions
and arguments