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Friedman Analysis Essay Sample

Friedman Analysis Pages
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Problem:
• The corporation is owned by shareholders and run by agents (executives). The goal of any corporation should be to provide the maximum profit possible for its owners. But the problem is when agents perform acts of social responsibility by sacrificing owner’s profits. Question:

• The key question that emerges is

Purpose:
• My purpose is to bring clear understanding amongst corporation that they are agents and they are there to fulfill the shareholder’s wishes. Any shareholder’s wish would be get the greatest return possible on their investment. The agents are sacrificing shareholder value by performing social responsibility acts such as donating for clean water or clean air or keeping their prices to avoid inflation.

Assumption:
• One of the biggest assumptions I am making is that all the shareholders are interested in the highest return on their investment by getting largest possible profits even if that harms society. • The executives are not experts in the field that they are performing their acts of social responsibility.

Implications:
• I am not against social responsibility but that should be done by the person. So if company executives make contribution from their personal wealth than that’s great because it is aligned with the wishes of the owner of that money. So if corporations started acting as the agents and act in the best interest of their shareholders, we could create more shareholder wealth and remove any expenses that are against the wishes of the owners. Concept:

• Concept is we should do what we are best at. Agents of corporations are best at running that company and generating profits for the shareholders. They may not be experts in social responsibility or cause that they are donating to. So by removing acts of social responsibility, we are aligning corporations with the wishes of their owners stopping leakage of profits and reducing percentage of companies going out of business for ill practices.

My view:
• My point of view is that corporation and executives are agents of the principal and should perform based on the wishes of the owners. They do not have right to spend someone else’ money as they would like.

Solution:
• Company bylaws should not allow corporations to engage in social responsibility acts without express consent of its owners Friedman doctrine is one of the biggest critiques on modern businesses and corporation. Dr. Friedman clearly explains that corporation may be an entity but it’s executives are only agents and not principal owners. They do not have a right to spend owner’s money against owner’s wishes. I agree with Dr. Friedman that corporations should stay away from social responsibility. Corporations’ biggest goal is to generate maximum profits for its shareholders. They are contradicting this goal by making decisions and performing actions that are socially beneficial which may not necessarily align with the wishes of their owners.

I agree with this phenomenon because agents do not have right spend someone else’s money against the owner’s wishes. I agree that if executives or shareholder choose to engage in social responsibility, they should through their personal wealth but not through corporation wealth. Another problem caused by corporations engaging in social responsibility is heavy dependence and expectations on corporations to perform these actions in the future even if it means that they have to do it by sacrificing profits.

In addition, corporate executives are experts in leading their companies and generating profits through the product they sell. They are not necessarily experts in how to solve social problems. So having non experts engage in activities is not a fair use of resources.

We all live in the society. We should all be responsible for the resources that we use for our means. We should all participate in regeneration of resources and keeping our society prosperous. It should happen on personal level, not on conglomerate level. People have now started to believe that just because company cuts trees to make papers; it is company’s responsibility to grow more trees. Company generates paper because we demand papers, so they are fulfilling our demand. We are responsible for growing those trees or stop using paper.

Social responsibility is an incredible phenomenon but it’s meant to be social and communal rather than having few corporations take the burden for the entire society. All corporations are doing are fulfilling societal needs. If we do not demand, they won’t produce.

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