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Must Milton Friedman Embrace Stakeholder Theory?

Author

Listed:
  • Ignacio Ferrero

    (School of Economics and Business Administration, University of Navarra)

  • W. Michael Hoffman

    (Center for Business Ethics, Bentley University)

  • Robert E. McNulty

    (Center for Business Ethics, Bentley University)

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.

Suggested Citation

  • Ignacio Ferrero & W. Michael Hoffman & Robert E. McNulty, 2012. "Must Milton Friedman Embrace Stakeholder Theory?," Faculty Working Papers 10/12, School of Economics and Business Administration, University of Navarra.
    • Handle: RePEc:una:unccee:wp1012
    as

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    File URL: http://www.unav.edu/documents/10174/6546776/1352899483_WP_UNAV_10_12.pdf
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    References listed on IDEAS

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