Must Milton Friedman Embrace Stakeholder Theory?

Ignacio Ferrero (), W. Michael Hoffman () and Robert E. McNulty ()
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W. Michael Hoffman: Center for Business Ethics, Bentley University
Robert E. McNulty: Center for Business Ethics, Bentley University

No 10/12, Faculty Working Papers from School of Economics and Business Administration, University of Navarra

Abstract: Milton Friedman famously stated that the only social responsibility of business is to increase its profits, a position now known as the shareholder model of business. Subsequently, the stakeholder model, associated with Edward Freeman, has been widely seen as a heuristically stronger theory of the responsibilities of the firm to the society in which it is situated. Friedman's position, nevertheless, has retained currency among many business thinkers. In this paper we argue that Friedman's economic writings assume an economy in which businesses operate under the protections of limited liability, which allows corporations to privatize their gains while externalizing their losses. By accepting limited liability, Friedman must also accept a view of business as embedded in social interdependency, which serves as the logical and moral foundation for corporate social responsibility (CSR). To restore consistency to his economic principles, Friedman must refuse limited liability or modify his doctrine on CSR and the related stakeholder model of business.

Keywords: Friedman; Freeman; shareholder; stockholder; stakeholder; limited liability; business ethics (search for similar items in EconPapers)
Pages: 31 pages
Date: 2012-10-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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