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ABSTRACT. In this paper I critically discuss Milton Friedman’s classic article, “The
Social Responsibility of Business is to Increase its Profits.” Friedman offers several argu-
ments for his stockholder theory of corporate moral responsibility, according to which a
corporation’s only moral responsibility is to promote the financial well-being of its stock-
holders. I first consider an inconsistency in his statement of his position – namely, the
distinct and non-equivalent constraints he places on profit-maximization (“the rules of the
game” and “the rules of society”). I then turn to a consideration of six arguments Friedman
gives to support his theory, spelling them out in detail and showing that none of them is
sound. I conclude with a brief intuitive argument against his theory.
INTRODUCTION
FRIEDMAN’S POSITION
of the game” to mean the actual practices obtaining within an industry. For
example, a restaurant owner who balks at bribing an inspector or paying
a mobster for protection may be failing to play by the rules of the game,
though she is abiding by the law in doing so. Or, consider the response
of Credit Suisse First Boston (CSFB) to charges made with respect to its
underwriting of initial public offerings:
Securities regulators and federal prosecutors have been gathering information from First
Boston and other investment banks about how they sold the shares and whether they
extracted promises from customers to buy more shares at higher prices, a practice that
would be illegal. The firm has said that it did not deviate from standard Wall Street practice.
(McGeehan, 2001)
FRIEDMAN’S ARGUMENTS
sible that Friedman has some such argument in mind, and to the extent that
he does, my criticisms are germane.
her principal. A stockbroker, for example, often acts as the agent for her
client, but she also has duties to her employer: though it would maximally
promote the client’s well-being for the broker to execute a trade without
any commission, it is not in the firm’s interest that the broker do so. On
the other hand, the argument begs the question, because no stakeholder
theorist would accept the reformulated version of P2.
Thus Friedman argues for the wrong conclusion, since the issue is
not whether management’s primary obligation is to the stockholders, but
whether management’s only obligation is to the stockholders. So even if
we grant that the Agent-Principal Argument is sound, it is too weak to
support Friedman’s view.
CONCLUSION
REFERENCES
Beauchamp, T. L. and N. E. Bowie (eds.): 2001, Ethical Theory and Business (6th edn.),
Prentice Hall, Upper Saddle River, NJ.
Boatright, J.: 1994, ‘Fiduciary Duties and the Shareholder-Management Relation: Or,
What’s So Special About Stockholders?’, Business Ethics Quarterly 4, 393–407.
Carson, T.: 1993, ‘Friedman’s Theory of Corporate Social Responsibility’, Business and
Professional Ethics Journal 12, 3–32.
Friedman, M.: 1962, Capitalism and Freedom, University of Chicago Press.
CORPORATE MORAL RESPONSIBILITY 451
Friedman, M.: 1970, ‘The Social Responsibility of Business is to Increase its Profits’, New
York Times Magazine, 13 September. Reprinted in Beauchamp and Bowie 2001; page
references are to the reprint.
Goodpaster, K.: 1991, ‘Business Ethics and Stakeholder Analysis’, Business Ethics
Quarterly 1, 53–73. Reprinted in Beauchamp and Bowie 2001; page references are to
the reprint.
McGeehan, P.: 2001, ‘Credit Suisse Trims Compensation of More Top Bankers’, New York
Times, 13 November.
Reich, R.: 1999, ‘A Shareholder, and a Citizen’, New York Times, 5 November.