However, corporate governance and ethical investment have been criticised by economists such as Milton Friedman, for him: There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), p. 133. This is backed up by other economists such as Willem Vanderbilt who says: The public be dammed. I’m working for my stockholders
The reason for this vigorous attack on “corporate responsibility” is because economists who back these views see it as damaging to the corporations ability to deliver shareholder value. They argue that an organisation that diverts its attention from its primary objectives and commitments is no longer of any use to its users and those that hold a stake within it. For example: A trade union that becomes totally focused on political activity to the extent that it gradually becomes an explicitly political movement will cease to serve its members’ everyday interests and needs except in an indirect and detached way.
(Samuel Greg 2001) This same observation applies to corporations, if they lose site of their primary aims, then they are betraying those individuals who have actually taken the risk of investing money into the company. Their obligation is to the shareholder, it is a widely shared opinion amongst economists that the command shareholders enjoy over corporations is quickly diluted in this stakeholder scenario. This is unfair to those individuals who have chosen to undertake risks that others have not.
However this view is putting forward the argument that the role of a business person is purely to make a profit not to be a good corporate citizen. Although business is an activity of private enterprise it is not one of isolated individuals. Business would not exist without society. It is a social practice and its actions have affects on the social good and well being of the rest of society. It is nai?? ve to suggest that beyond profit and shareholder needs corporate responsibility stops. There is always a point where social responsibility overrides profit.
Such as when businesses withdrew from the South African economy as an action against apartheid is a prime example of social responsibility overruling profit. Economists such as Milton Friedman are failing to remember that corporations are not run by machines and robots that have no moral understanding; they are run by human beings who are affected by the actions of a corporation. If corporations had carried on doing business with South Africa it would have been offensive to their black employees and would have caused unrest amongst their workforce.
Therefore it was a management decision to pull out of South Africa, because the management realised that it has responsibility to other stakeholder’s not just shareholders. As I mentioned earlier business activity is a social practice, it interacts with society. It creates employment, it has a responsibility to its customers to produce goods that are of an acceptable quality and it has a responsibility to be aware and act to prevent or regulate some of its actions that may be damaging to the environment and the rest of society.
However, these actions are not carried out merely because the corporations have had a “conscience attack”. They are done in order to preserve the firm’s profitability. For example, if a firm failed to recognise that customers want goods that are of a decent quality and at an acceptable price, their sales would decrease and so would the amount of return for the investors. So these actions are carried out by managers for the sake of profitability.