Discussion: Social Responsibilities of the Firm Wilson

Discussion: Social Responsibilities of the Firm Wilson

Discussion: Social Responsibilities of the Firm

I agree with the statement that business has no social responsibility beyond that of generating profits for its stakeholders.  But if those same businesses wish to enhance profits, studies have shown that companies that take care of their employees and practice social responsibility in the form of credibility, respect, fairness, pride, and camaraderie, generated returns 2.3% to 3.8% higher than their peers from 1984 to 2011 (Edmans, 2012).  Additionally, companies that score high on employee engagement demonstrate 21% higher levels of profitability (Sorenson, 2013).  The reasons for this are simple; companies that have happy employees have happy customers.  Studies have shown a clear connection between increased profitability, productivity, customer satisfaction, and other key performance outcomes (Harter, Schmidt, Agrawal, & Plowman, 2013).  It is in light of these facts and figures that many experts have recently come forward with claims that Friedman’s free market manifesto is outdated and no longer relevant in the modern world.  They decry the economic, racial, and health inequalities that result from such a mindset (Dealbook Newsletter, 2020).  But Friedman never intended for businesses to ignore ethical responsibility altogether. He simply pointed out that the laws of economics constrain businesses, not social obligations, and while they should still adhere to ethical customs and legal requirements, they do this because it is financially prudent to do so (Tepper, 2020).  Businesses that ignore ethical responsibility and break the law in the name of profits, do so only for short-term gains (Strain, 2020).  Take companies like Volkswagen, Wells Fargo, and Foxxconn for example and we can see that unethical behavior is not only costly financially, but also damaging to the brands themselves.  But at the end of the day, it is up to the customers and the stakeholders of those companies to decide whether they will continue to support those businesses.  Therefore, while I do agree with Friedman, that in principle, businesses should not be constrained to only act in a socially responsible manner, it is still a fact that businesses which do, tend to be more profitable overall.

References

Baye, M. R., & Prince, J. (2017). Managerial Economics and Business Strategy (9th ed.). New York, NY: Richard D. Irwin, Inc.

Edmans, A. (2012). The link between job satisfaction and firm value, with implications for corporate social responsibility. Retrieved May 19, 2021, from http://faculty.london.edu/aedmans/RoweAMP.pdf

Dealbook Newsletter. (2020, September 13). Greed is good. Except when it’s bad. Retrieved May 20, 2021, from https://www.nytimes.com/2020/09/13/business/dealbook/milton-friedman-essay-anniversary.html?referringSource=articleShare

Harter, J. K., Schmidt, F. L., Agrawal, S., & Plowman, S. K. (2013, February). The relationship between engagement at work and organizational outcomes. Retrieved May 19, 2021, from https://employeeengagement.com/wp-content/uploads/2013/04/2012-Q12-Meta-Analysis-Research-Paper.pdf

Sorenson, S. (2013, June 20). How employee engagement drives growth. Retrieved May 19, 2021, from https://www.gallup.com/workplace/236927/employee-engagement-drives-growth.aspx

Strain, M. R. (2020, September 18). Milton Friedman Was Right About Shareholder Capitalism. Retrieved May 19, 2021, from https://www.bloomberg.com/opinion/articles/2020-09-18/milton-friedman-was-right-about-shareholder-capitalism

Tepper, T. (2020, September 16). Milton Friedman on the social responsibility of Business, 50 years later. Retrieved May 19, 2021, from https://www.forbes.com/advisor/investing/milton-friedman-social-responsibility-of-business/