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Fair Profit Maximization and Limited Corporate Social Responsibility Benefit All Stakeholders

Autor:   •  November 27, 2011  •  Essay  •  1,784 Words (8 Pages)  •  1,735 Views

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1. Introduction

Kolstad provided a step-by-step refutation of Friedman's argument that the social responsibility of business is to maximize profits. He argued that no reasonable ethical theory can defend unlimited profit maximization. He also concluded that corporate social responsibility (CSR) and profits cannot be always achieved at the same time. I will first summarize Kolstad's arguments, and then argue that the managers do have special duties to the owners of the firms. Therefore, the managers should aim at fair profit maximization for the shareholders with considerations for other stakeholders. To achieve the fair profit maximization, managers should not take unlimited CSR. If the CSR is defined properly, reasonable CSR and fair profit maximization can go together.

2. Summary of Kolstad's arguments

2.1 Refutation of Friedmanian view of profit maximization

Kolstad first summarized four basic argument s used to underpin Friedmanian position, then he provided a step-by-step refutation of Friedman's arguments: 1) Friedman argued that managers are bound by contract to act only in the interest of shareholders. Kolstad argued that two parties that enter into an agreement cannot argue that the agreement release them from responsibility for third parties. 2) Friedman argued that pursuing other ends to the detriment of shareholders is equal to tax the shareholders. Kolstad argued that if one can demand the shareholders to sacrifice some of their returns for other important ends, the manager is just the one who put this into practice. 3) Friedman argued that an efficient division of labor between business and government is for business to create value and the government to redistribute it. Kolstad argued that in many countries governments and public institutions are incapable to assume many of the duties implied by the ideal division of labor. 4) Friedman assumed that a business taking an extra responsibility would not survive, while Kolstad argued that if other stakeholders value CSR, a responsible firm could survive and even thrive.

2.2 Refutation of special duty to shareholders which is implied from Friedmanian view.

Kolstad argued that the implications of profit maximization can be regarded as a special duty to shareholders. Furthermore, unlimited profit maximization implied that the special duty to shareholders takes preference over duties to other agents. To refute this implication, Kolstad applied two approaches: relationship approach and universalistic point of view. With the relationship approach, Kolstad analyzed how the special duties that follow profit maximization hold up in the framework of three traditions: voluntarist tradition, communitarian tradition and mutual benefit tradition. 1) The theory in the voluntarist tradition would accept special

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