explain how milton friedmans shareholder theory can lead to

explain how milton friedman\'s shareholder theory can lead to ethical conduct in business

Solution

Milton Friedman considers shareholders as the economic engine of an organization and takes a shareholder approach to social responsibility. The goal of a firm is to maximize profits and return a portion of those profits to the shareholders as a reward for the risk they have involved. Friedman argued that a company should not hold any social responsibility to the public or society because its main objective is to make profits. If companies concern themselves about with the community rather than focussing on business, it will lead to totalitarianism.

There is one and the only one social responsibility of business that is to use its resources and engage in activities designed to increase its profits. The single moral responsibility of directors and executives is to meet shareholders expectations, which is to maximize their return on investment. Friedman’s view is similar to social Darwinism, applying the survival of the fittest principle to the market to ensure the best of all possible outcomes. The only qualification on the rule to make as money as possible is conformity to the basic rules of the society, both those embodied in law and those embodied in ethical custom.

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