Question

In: Economics

Friedman and Heath both argue that managers have an ethical duty to maximize profit for the...

Friedman and Heath both argue that managers have an ethical duty to maximize profit for the firm. Why? How are their views about justified forms of profit-maximization different? What do you think?

Solutions

Expert Solution

According to their views, managers are the agent of the owners of the firm and they are paid compensation to work only to maximize the benefits for the firm. Further, the firm has already employed different people at work, so the responsibility towards the community is already fulfilled. Hence, the managers have the ethical responsibility to maximize profit for the firm. It is the basis of creating more jobs for the people willing to work.
Their views are different in the sense that they only consider the profit maximization of the firm, but other justified views focus upon the profit maximization of the stakeholders. So, Friedman and Heath only take care of the shareholders, but other views consider about the stakeholders that not only include shareholders, but also consideration of employees, regulatory agencies, community and other stakeholders.
As per my perspective, stakeholder approach of profit maximization is more ethical as it considers to take care of the best interest of the different stakeholders. It brings a balancing approach in the decision making process and it acts as a controlling impact. But, these aspects are missing from the thinking of Friedman and Heath, that is very narrow in nature and odes not suit to the society as a whole.


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