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Do Corporations Have Any Responsibility Beyond Making a Profit?

Controversy

Abstract

In 1970 Milton Friedman published a short but extremely controversial essay in which he denied that corporate executives had any moral duty to relax the conditions of profit maximization on behalf of the wider interests of society. They are under a strict contractual duty to act for the owners of the company (the stockholders). For executives (or, indeed, owners) to use company resources to advance social goals (such as affirmative action in the workplace, social justice remuneration, and rigorous environmental constraints that exceed the requirements of positive law) would be for them to usurp the political function. Some would go further and insist that such action is a form of theft. The social-responsibility thesis is a covert attempt to bring about socialism. Friedman’s view, however, has been broadly accepted by all pro-capitalist writers, albeit with some modifications. For example, it is maintained that the passive stockholder is not a conventional resource owner; he or she is not allowed to enter the plant of a company randomly or have access to its secret information. Shareholders are more accurately understood as partners in a contract with the firm—a contract that entitles them to a return on their investment. It does not authorize company expenditure on morally worthy projects that might be against the interests of the stockholder; furthermore, the courts have been reluctant to uphold actions that do not have stockholder interests as their object. The real justification for the capitalist system is utilitarian: It demonstrably increases social well-being by providing jobs for willing workers and products at competitive prices. However, any departure from these goals involves not just a lowering of utility but also a breach of property and contract rights. But the relationship between utility and rights is never explored in this theory.

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