Corporate Social Responsibility Part 1 - Friedman & Freeman

Corporate Social Responsibility (CSR) is a buzzword that is associated with many companies today.  Companies like Patagonia, Ben & Jerry’s, and Starbucks coffee have developed corporate branding that has made their names almost synonymous with the concept (Jennings, 2012, p. 102).  Corporate social responsibility is a concept that has many scholars with different schools of thought weighing in.

Milton Friedman is one such scholar.  He believes that only people can have responsibilities, not businesses (Jennings, 2012, p.91). By this interpretation, one has to look deeper, to the people running the business and assess their obligation to social responsibility.  Friedman writes that the only obligations that they have is to make profits for the benefit of the employees and shareholders (Jennings, 2012, p. 91). 

To imply that he must act in a way that is ‘socially responsible” is to imply that it is in conflict with the best business interest of the company, to whom he has his primary responsibility (Jennings, 2012, p. 92). The business executive is one that makes decisions that are in the best interest of those stockholders who selected him, not to be an agent for civil service that distributes money that is not his is accordance with a perceived social responsibility (Jennings, 2012, p. 93). 

R. Edward Freeman takes a view of the modern corporation that is similar, but defined somewhat differently.  While he agrees that the duty of managers is to promote the interest of the stockholders (Jennings, 2012, p. 97), he believes that they have other stakeholders to which they have a duty as well.  These stakeholders include groups like suppliers, customers, employees, and the community (Jennings, 2012, p. 96). 

Freeman believes that in its purest concept, capitalism is about maximizing the interest of the stockholders, which is maximizing profits, (Jennings, 2012, p. 98).  Therefore, there is not much incentive to behave is a socially responsible manner, unless you view it from the stakeholder perspective. 

Freeman talks about primary and secondary stakeholders.  Primary stakeholders are those that the firm could not function without, like customers and employees.  Secondary stakeholders, like community groups and nonprofit organizations, can affect the performance of the corporation through community influence, but are not directly involved in business with the company (Homberg, Stierl, & Bornemann, 2012, p. 57).  This provides a broader definition that allows the executive to balance the needs of stakeholders, without completely discounting social responsibility in the name of the almighty dollar. 

Stakeholders to a Corporation