Must Milton Friedman Embrace Stakeholder Theory?

Business and Society Review 119 (1):37-59 (2014)
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Abstract

Milton Friedman famously stated that the only social responsibility of business is to increase its profits, a position now known as the shareholder model of business. Subsequently, the stakeholder model, associated with Edward Freeman, has been widely seen as a heuristically stronger theory of the responsibilities of the firm to the society in which it is situated. Friedman’s position, nevertheless, has retained currency among many business thinkers. In this article, we argue that Friedman’s economic writings assume an economy in which businesses operate under the protections of limited liability, which allows corporations to privatize their gains while externalizing their losses. By accepting limited liability, Friedman must also accept a view of business as embedded in social interdependency, which serves as the logical and moral foundation for corporate social responsibility (CSR). To achieve consistency with his economic principles, Friedman must either abandon limited liability or modify his doctrine on CSR and his related shareholder model of business.

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Author's Profile

Ignacio Ferrero
University of Navarra

References found in this work

The Politics of Stakeholder Theory.R. Edward Freeman - 1994 - Business Ethics Quarterly 4 (4):409-421.
A Brand New Brand of Corporate Social Performance.Tim Rowley & Shawn Berman - 2000 - Business and Society 39 (4):397-418.
Does Milton Friedman Support a Vigorous Business Ethics?Christopher Cosans - 2009 - Journal of Business Ethics 87 (3):391-399.
Ending the so-called 'Friedman-Freeman'debate.R. Edward Freeman - 2008 - Business Ethics Quarterly 18 (2):153-190.

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