Milton Friedman’s shareholder theory of management says that the purpose of a business is to make money for the owner or the stockholders of the business. Friedman says that there is only one social responsibility for the business: to use its resources in order to increase its profits as long as the business stats within the rules that are assigned, as for example to compete in free competition and without cheating or fraud.
Milton Friedman’s first argument is that the social responsibility of business is to increase its profits. Managers must have fiduciary responsibility to the owners and the purspose of the business is not to provide employment, eliminate discrimination, avoid pollution, help the community or make life better for workers. Friedman thinks that business should not work as a charity, and should do anything other than making profit to promote socialism and undermine free society.
Friedman thinks firms ought to maximize their profit, as they have social obligation to do so, because “profit really represents the net contribution that the firm makes to the social good and the profits should therefore be made as large as possible.” In addition Friedman assumes that natural constrains of the market will help keep companies in check, as for example is a company is known as to be dishonest or really bad to the employees, then consumers will not buy from that specific company.
On the other hand, Edward Freeman’s stakeholder theory of management tries to impose something different of...