Friedman Analysis

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Problem:
• The corporation is owned by shareholders and run by agents (executives). The goal of any corporation should be to provide the maximum profit possible for its owners. But the problem is when agents perform acts of social responsibility by sacrificing owner’s profits. Question:

• The key question that emerges is

Purpose:
• My purpose is to bring clear understanding amongst corporation that they are agents and they are there to fulfill the shareholder’s wishes. Any shareholder’s wish would be get the greatest return possible on their investment. The agents are sacrificing shareholder value by performing social responsibility acts such as donating for clean water or clean air or keeping their prices to avoid inflation.

Assumption:
• One of the biggest assumptions I am making is that all the shareholders are interested in the highest return on their investment by getting largest possible profits even if that harms society. • The executives are not experts in the field that they are performing their acts of social responsibility.

Implications:
• I am not against social responsibility but that should be done by the person. So if company executives make contribution from their personal wealth than that’s great because it is aligned with the wishes of the owner of that money. So if corporations started acting as the agents and act in the best interest of their shareholders, we could create more shareholder wealth and remove any expenses that are against the wishes of the owners. Concept:

• Concept is we should do what we are best at. Agents of corporations are best at running that company and generating profits for the shareholders. They may not be experts in social responsibility or cause that they are donating to. So by removing acts of social responsibility, we are aligning corporations with the wishes of their owners stopping leakage of profits and reducing percentage of companies going out of business for ill...
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