Question

1. Nobel Prize–winning economist Milton Friedman stated in a New York Times Magazine article in 1970 that the only “social responsibility of a business is to increase its profits.” Using the stakeholder theory and corporate examples, please explain if this statement is right or wrong in today's business environment.

2. What are the big ethical dilemmas of the twenty-first century? Please discuss a corporate example facing ethical dilemmas regarding its consumers.

Answer 1

1) A stakeholder theory stresses the interconnectedness between a business and its customers, employees, suppliers, investors, communities and all others who have a stake in the corporation. In the view of corporate governance mechanism, it states that the corporation should always focus on satisfying the needs of the stakeholders and not just focus on the shareholders in the business. In the given statement, Milton Friedman says that the ‘social responsibility of a business is to increase the profits’. But, it has to be understood that the generation of profits only forms the ‘profit responsibility’ part of the firm’s activity. There are also other components like ‘stakeholder responsibility’, ‘social responsibility’ and ‘individual responsibility’ in the profit-making process. This states that the corporate governance mechanism should have a purpose for the society.

                     The introduction of Corporate Social Responsibility [CSR] is a step in this process. For example, consider the TATA group of India or the Walmart, Amazon etc based on America. The organizational framework and the working mechanism of the firms suggests that profit may be the prime motive of the firms, but not the only motive of them. For example, the TATA group spends crores of money on CSR and non-CSR activities which are aimed at educational development in the society, medical care etc. Amazon, meanwhile an internet-based firm helps the consumers to get the products at a faster and cheaper rate and the kind of accessibility it offers to the consumers across the globe is noteworthy. Walmart is a multi-level organization with an organizational mechanism that focus on multiple organizations at the same time which gives the consumers the choice of adaptability in the market. Thus, all the above examples make it clear that the view of Friedman, although correct to a certain extent, cannot be agreed to in the current business environment.

2) Ethical dilemma refers to such a confusion in the market where the corporate or the business entity or any other entity in an economy undertakes an activity and takes the profit or credit which it is not deserving in the process and thus results in the generation of profits for the entity. There are many ethical dilemma’s in the current environment. Some of them are as follows along with corporate examples.

· The major ethical dilemma in the corporate world is the dilemma of individual Vs community. In this process, although the firm has a ‘profit making responsibility’ so as to sustain the working population and move the firm forward, it also has a social responsibility where it has to satisfy the needs of the consumers at an advantageous position. Here, in the process of price fixation, many of those consumers may find it difficult to accommodate which would result in a dilemma for the corporation in price fixing mechanism in the market

· The next major dilemma is the short-term Vs long-term dilemma. A manufacturing firm focus on profit making as the prime motive which is as important as the sustenance of the firm in the long-run so that the firm has a strong base in the economy. Thus, considering this factor, the firm may have to resort to short-term losses to make long-term gains and vice-versa. This creates a dilemma as it affects the profit-making mechanism of the firm in the process.

· The dilemma’s of ‘truth Vs loyalty’ and ‘justice Vs mercy’ also forms a part of the current dilemma’s in the economy wherein there is a mix of strategies from the part of both consumers and manufacturers in an economy so as to take gains in the market.