Evaluating Milton Friedman’s Statement on the Social Responsibility of Business

Assignment Brief

Module Title: Business Strategy

Guidance for Final Critical Essay Assessment Students will choose ONE of the two statements to base their final essay on:

Using academic literature and current business examples, critically discuss the use of mergers and acquisitions as simply a way of strategically developing knowledge, compared to other internal and external development options

OR:

“The social responsibility of business is to increase profit.” Friedman, 1970

Critically evaluate this statement, using academic literature and current business examples.

Sample Answer

Evaluating Milton Friedman’s Statement on the Social Responsibility of Business

Introduction

Milton Friedman’s (1970) assertion that “the social responsibility of business is to increase its profits” remains one of the most debated statements in corporate and strategic management. Writing at a time when shareholder capitalism dominated economic thought, Friedman argued that business managers act as agents for shareholders and therefore must prioritise profit maximisation within the rules of the market. However, contemporary business environments have evolved to place far greater emphasis on sustainability, ethical governance, and social accountability. This essay critically evaluates Friedman’s claim using academic theories and modern corporate examples to demonstrate how corporate social responsibility (CSR) and stakeholder theory have reshaped the meaning of business purpose in the 21st century.

The Friedman Doctrine and Shareholder Primacy

Friedman’s view, outlined in The New York Times Magazine (1970), was grounded in classical economic liberalism. He argued that corporations have no social responsibilities beyond obeying the law and generating profits for their shareholders. According to agency theory (Jensen and Meckling, 1976), managers are agents whose primary duty is to act in the best interests of owners. Any diversion of corporate resources towards social objectives was seen as a misuse of shareholders’ money.

Friedman’s argument assumes efficient markets, transparent governance, and minimal externalities. In practice, however, market imperfections often mean that businesses’ actions have far-reaching social and environmental effects. The theory also relies on the belief that governments, not corporations, should manage social welfare, an assumption increasingly challenged in an era of globalisation and environmental crises.

The Rise of Stakeholder Theory and CSR

Contrary to Friedman’s stance, stakeholder theory, developed by Freeman (1984), argues that businesses must create value not only for shareholders but also for employees, customers, suppliers, and the wider community. This broader view of responsibility recognises that long-term profitability depends on maintaining positive relationships with all key stakeholders.

Modern CSR frameworks, such as Carroll’s (1991) Pyramid of Corporate Social Responsibility, highlight four layers of responsibility: economic, legal, ethical, and philanthropic. According to Carroll, profit remains a fundamental business goal, but ethical and social considerations are integral to sustainable success.

For instance, Unilever’s “Sustainable Living Plan” integrates environmental and social goals directly into its business strategy. Rather than reducing profit, this approach has enhanced brand loyalty and operational efficiency (Unilever, 2022). Similarly, Tesla’s focus on renewable energy technologies aligns corporate profit with global sustainability goals, illustrating that social responsibility can be a driver of innovation and competitive advantage rather than a limitation.

Criticisms and Limitations of Friedman’s View

Critics of Friedman argue that his theory overlooks the social contract between business and society. As corporations grow in influence, they affect employment, climate change, and consumer welfare in ways that transcend narrow profit motives. Porter and Kramer (2011) introduced the concept of shared value, proposing that firms can simultaneously achieve economic success and address social challenges. This approach directly contradicts Friedman’s zero-sum logic, positioning CSR as a source of competitive differentiation.

Moreover, ignoring social responsibility can damage reputation and profitability in the long term. The collapse of Enron and the 2008 financial crisis illustrate how excessive focus on shareholder returns, without ethical oversight, can lead to systemic failure. In contrast, companies that embed CSR in their governance, such as Patagonia or IKEA, have shown resilience and brand strength built on public trust.

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