Freeman and Friedman offering opposing views to answer the question “What is business’s responsibility?” Freeman puts forth what he calls the “stakeholder theory” while Friedman advocates for the “stockholder theory.”
Freeman’s stakeholder theory identifies different “stakes” that influence an organization. Each of these parts is integral to the well-functioning of the organization. Included in these categorizations are employees, shareholders, communities, and customers. Freeman advises organizations to treat all of these groups with utmost respect and to regard them with equal importance. He believes that without any of these groups the organization would cease to exist. For example, if the organization mistreats the employees, the employees will not be motivated to provide good work and will thus trigger the demise of the organization.
Friedman on the other hand believes the only group with an actual intrinsic value to the organization is the shareholders. He argues that the only respobility that business has is to make profit, and in order to do this the shareholders need to be treated as the most important part of the organization. Freidman says there is a contract between the executive and the shareholders since the executive is working for the shareholders and the shareholders have a lot of value at risk.
These two opposing views are crucial for organizations to consider when deciding how to treat the different involved groups. Yes, every organization wants to make profits. And yes the shareholder’s only hope is for profits. But isn’t it important to consider how employees and customers play valuable roles in contributing to the profit making organization. If the organization ignores customer’s desires, customers will no longer actively want to purchase from the organization.
In a case such as Merck and Co, Friedman would recommend that Merck not try to cure river blindness. The decision would not be profitable and would not be in the shareholder’s best interest. Merck is a business, and should be mainly concerned with profit and maximizing shareholder value. Contrarily, Freeman may suggest that Merck go ahead and try to cure river blindness.