馃攳
Social Responsibility Perspectives: The Shareholder and Stakeholder Approach - YouTube
Channel: Alanis Business Academy
[7]
It was Milton Friedman, the famous nobel prize
winning economist, who once said there is
[12]
one and only one social responsibility of
business鈥攖o use its resources and engage
[18]
in activities designed to increase its profits
so long as it stays within the rules of the
[23]
game.
[24]
Friedman's comments characterize one of two
perspectives related to business social responsibility.
[30]
On one hand we know that the primary objective
of a business is the attainment of profits.
[36]
But does that mean that profits are the only
factor that business managers should consider
[41]
when making decisions?
[43]
Before we go into greater detail on the different
perspectives related to social responsibility,
[48]
lets define the term.
[50]
Social responsibility can be defined as a
businesses obligation to make decisions that
[55]
ultimately benefit society.
[57]
The issue that I'm sure you're beginning to
realize, is how does a business engage in
[62]
actions that benefit everyone?
[64]
This is a very difficult task, however business
managers must be able to balance these competing
[70]
interests.
[71]
But lets get back to Friedman and the shareholder
model.
[75]
Friedman felt that business social responsibility
was pure and unadulterated socialism, and
[80]
even compared businesses that engage in social
responsibility efforts to government institutions.
[87]
So why is Friedman so adamantly opposed to
social responsibility?
[91]
Well there are in fact a few different reasons.
[95]
First lets take a look at how most large businesses
are structured.
[99]
For liability and financing purposes, many
large businesses are structured as C-Corporations.
[105]
Now the only thing you need to know about
C-Corporations to understand Friedman's argument
[110]
is their composition.
[111]
The key parties of C-Corporations include
shareholders, the board of directors, and
[116]
corporate officers.
[118]
The shareholders are those individuals who
invest their money in the company in exchange
[122]
for a percentage of ownership and typically
voting rights.
[125]
This makes shareholders the actual owners
of the company.
[129]
Since shareholders doesn't necessarily have
the time or expertise to make company decisions
[135]
they elect the board of directors, who appoint
corporate officers to manage the day-to-day
[139]
operations.
[141]
And since shareholders, who again are the
owners, can't make the decisions it's the
[145]
responsibility of the corporate officers to
make decisions that are in the best interests
[150]
of the shareholders.
[151]
And what is more important to shareholders
than profit?
[156]
So it is the responsibility of a corporate
executive to make as much money as possible,
[161]
while of course operating within the rules
of the game, which refers to established laws.
[166]
Now engaging in what is termed social responsibility
is in direct conflict with the shareholder
[172]
model because it diverts resources and energies
away from profit maximizing behaviors.
[179]
Take for instance giving to a charitable organization.
[182]
Friedman isn't arguing against donating to
your local church, but he is arguing that
[187]
a business is not the appropriate vehicle
to do it.
[191]
For one, finding a cause that all of its shareholders
agree with would be nothing short of a miracle.
[198]
And secondly, by spending energies and resources
on social responsibility the business is giving
[203]
up those alternatives that it may have otherwise
engaged in.
[208]
Those alternatives may produce more of a benefit
for the business.
[212]
Instead Friedman believed that businesses
should pursue profit maximization, essentially
[217]
making as much money for shareholders as possible,
and with that extra cash shareholders could
[223]
donate to whatever organization they wish.
[227]
Friedman's views of course represent just
one of the two perspectives related to social
[231]
responsibility.
[232]
The second perspective is known as the stakeholder
model, and maintains that businesses have
[237]
a responsibility to not only seek profits,
but to also satisfy the interests of multiple
[243]
stakeholders.
[244]
These stakeholders represent individuals or
groups that have an interest in the actions
[250]
and behavior of the business.
[252]
The idea behind the stakeholder model, is
that business managers need to maintain a
[256]
positive relationship with society and their
environment if they are to operate effectively.
[262]
Failure to do so can harm a businesses reputation
and ultimately affect their ability to operate.
[268]
Now since all stakeholders do not have the
same influence on an organization, we commonly
[273]
separate them into two categories: primary
stakeholders and secondary stakeholders.
[280]
Primary stakeholders represent those individuals
or groups who have a greater influence on
[285]
the organization.
[286]
They include a business's customers, employees,
investors, suppliers, government agencies,
[293]
and the local community.
[295]
These groups are of utmost importance because
the business relies on them for long-term
[300]
survival.
[301]
Think about the impact on a business if its
customers stopped buying products, or investors
[306]
withdrew their investment.
[308]
Under the stakeholder model, business managers
top priority should be satisfying the various
[313]
interests of these groups.
[316]
Although secondary stakeholders are not as
critical as primary stakeholders, they still
[321]
can influence public perception of the business.
[324]
Common secondary stakeholders include special
interest groups and the media.
[329]
These groups don't conduct business regularly
with the organization, but what they communicate
[334]
or choose to communicate can have an impact
on public perception.
[339]
Just look at the efforts that oil and gas
company British Petroleum has gone to in order
[343]
to repair its battered image in the wake of
the Deepwater Horizon oil spill.
[347]
Although the criticism was certainly warranted,
special interest groups and media played a
[352]
significant role in transmitting information
related to BP's decisions that led to the
[356]
explosion and subsequent oil spill.
[359]
Now that we've outlined both the Shareholder
and Stakeholder Models, and as we finish up
[363]
this video, I want to leave you with a parting
question.
[367]
Should business managers subscribe to the
shareholder model or stakeholder model ? Perhaps
[372]
a better question is If you were the business
manager making the decisions, which model
[377]
would you follow?
[379]
If profitability is a businesses objective
than is it wrong to make decisions with that
[384]
objective in mind?
[386]
Although you could certainly make the case
that cutting costs to boost profits in the
[390]
short-term didn't benefit BP in the long run.
[394]
So maybe acting socially responsible is less
about being socially responsible and more
[400]
about being profitable.
[402]
It could be that being socially responsible
is in fact good for business, and not pure
[408]
and unadulterated socialism as Milton Friedman
suggests.
[413]
Even if business managers only consider the
interests of stakeholders for the incentive
[417]
of profits, doesn't everyone win?
[420]
Let us know what you think in the comment
section below.
[423]
And while your leaving that comment, go ahead
and click the like button, assuming of course
[427]
that you enjoyed this video.
[429]
And remember to subscribe to Alanis Business
Academy to have our latest videos sent to
[433]
you while you sleep.
[435]
Thanks for watching.
Most Recent Videos:
You can go back to the homepage right here: Homepage