Friedman vs Freeman

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  • Topic: Corporation, Property, Profit maximization
  • Pages : 2 (361 words )
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  • Published : October 23, 2010
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The purpose of a business is to maximize profits while adhering to law and ethics. Primarily, this argumentation is based on the notion that corporations, as legal persons, cannot have responsibilities like natural persons. Secondary, Friedman’s argumentation is based on the principle of ownership and employment. By not complying with the duty of serving the owners’ interest (maximum profit), a manager would allocate resources artificially and arbitrarily. This spending would be unjust and probably non-Pareto-optimal, because it is not democratically authorized. Assigning duties other than serving the owners to a non-democratically selected manager would result in abandoning parts of freedom and democratic achievements. Freeman:

Management serving only the interest of stockholders is already significantly restricted by laws and economic logic. Freeman argues that the owners’ claim on a company is worth the same as employees’, suppliers’, customers’ and the local community’s claims. All stakeholders maintain a reciprocal relationship of rendering and receiving resources to and from the corporation. Managers must act as balance-maintainers of stakeholder interests to guarantee the sheer existence of the corporation and not out of altruistic reasons. Freeman’s approach is not static but comprises a constant reconciliation of stakeholder interests based on certain ground rules (“doctrine”) that is intended to guide the process to corporate constitutions, similar to government constitutions with all stakeholders as equal parties.

Differences and potential alignment:

While Friedman considers maximization of owner’s profit as means to achieve maximum societal profit while maintaining democratic freedom, Freeman argues that balancing stakeholder interests is both necessary for economic survival and maximization of profit. Both positions can be aligned if: 1. All stakeholders (especially the owners) are aiming for long-term survival and success of a...
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