6/23/2022 Management

Accounting

ARSHDEEP SINGH (500209893)

GURNEET (500199072)
YOGITA (500208098)
INTRODUCTION-

The "mission of a business" has changed, according to an organisation that advocates for large

corporation CEOs. It now serves other "stakeholders," including as employees, consumers, and

citizens, rather than maximising profits for shareholders.

EXPLANATION-

Although the remark is a welcome debunking of a widely accepted but false idea of corporate

responsibility, it is unlikely that this new philosophy will alter how businesses act. Corporate

entities must be subject to legal regulation to be compelled to behave in the public good.

Friedman stated in a well-known New York Times article from 1970 that the CEO must work in

the shareholders' best interests by giving them the biggest return possible since the CEO is a

"employee" of the shareholders. Friedman made the point that if a CEO behaves differently, for

as by donating company money to an anti-poverty programme or an environmental cause, the

CEO will have to raise money from either consumers (via higher pricing) or employees (through

lower salaries) or shareholders (through lower returns). However, the CEO is only "taxing"

others and spending the proceeds for a purpose in which they lack any specific competence. It

would be preferable to allow clients, employees, or investors to utilise the cash for their own

philanthropic activities those they wished to do.

Many company leaders understood that wage and price restrictions would benefit their bottom

line (no doubt by keeping the cost of labour and other inputs down) and didn't care if they hurt

the whole economy in the process.

Friedman ought to have known about this option, and he probably did. The best approach for an

established corporation to increase profits is to eliminate competition; the tried-and-true strategy

for doing so is to convince the government to create a rule that prevents new businesses from

entering its market or that otherwise lowers its expenses. Additionally, if a company's goal is to

"grow its profits," as Friedman said, then it is not only "clear-headed," but also acceptable for a

company to use its political power to undermine the government. The idea that the large public

firms serve as judges for the free market is, in fact, absurd. In our capitalist economy, large firms

are socialist islands because they are shielded from competition for workers and consumers by

their size. CEOs are more than ready to accommodate investors of capital since they stand to

gain when product and labour markets are monopolised. Friedman’s enterprises can increase

their earnings in other, all-too-common ways. They have the ability (like Facebook) to go back

on their privacy commitments. By promoting the spread of hate speech, they may make money

via advertisements (like Twitter and Google). They may spread misinformation about climate

science (like Exxon once did). To prevent their low-skilled employees from leaving low-paying

employment, they may utilise unlawful contract clauses (like Jimmy John's). They could try to

sell youngsters addictive items (as the cigarette industry did, and now the tech industry is doing

the same), or (like Purdue Pharma) raise a generation of drug addicts. They can also participate

in business lobbying.

CONCLUSION-

The largest issue with Friedman's argument is that businesses can—and should, in his view—use

their clout in Congress to thwart regulations that prohibit industries to be under loss.

Furthermore, Friedman was mistaken when he said that shareholders employ corporate

executives. Legally speaking, company executives are workers of the corporation, which is
fundamentally something they control rather than the shareholders. The shareholders have a legal

agreement with the firm that gives them the right to a portion of its revenues and a say in some

important corporate decisions. CEOs have frequently exploited their control over the company to

dismiss shareholder proposals that the company engage in a socially responsible manner. An

employee leaps when their employer commands them to. The CEO sues the shareholders when

they tell him to "jump." The main argument made by Friedman was that company executives are

rarely equipped to decide how best to spend corporate cash for the public. And for that reason,

adopting a "stakeholder" philosophy is far from a guarantee that businesses would henceforth

behave ethically. Punishing companies through the legal system is the only method that has been

shown to deter them from polluting, cheating, and monopolising.

REFERENCE-

https://core.ac.uk/download/pdf/30893731.pdf

https://www.theatlantic.com/ideas/archive/201/08/milton-friedman-shareholder-wrong/596545/

Friedman Doctrine - Overview, What It Says, Influence (corporatefinanceinstitute.com)