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Corporate Profit Vs Social Benefit: A Balanced Perspective

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Corporate Profit Vs Social Benefit: A Balanced Perspective

Corporate Profit vs Social Benefit: A Balanced Perspective

The issue of the corporations’ social responsibility is a complex topic in business, and the ar- guments for this issue have never stopped so far. There are many economists and philosophers who expressed their views about what is the social responsibility of corporations. The Shareholder Model by Milton Friedman, the Stakeholder Model by Edward Freeman, and the Market Failures Model by Joseph Heath are three representative views of business ethics. In this paper, I would like to support the Market Failures Model by Heath. In the first part, I will expound what is the responsibility of corporations and classify the profit and ethic in my own view. Then, I will contrast the Shareholder Model and the Stakeholder Model to show how they fail in my view in the second and the third part. Finally, I will argue that the reason why Heath’s model makes sense is that it achieves a balance of profit and ethics.

In the market economy, the target of the market is to pursue maximized profits, therefore get- ting profits is one of the main responsibilities of a corporation. I call it an internal responsibility. However, getting profits cannot be the only responsibility of a corporation. There is another item called social responsibility which belongs to the corporation’s responsibilities. These social responsi- bilities could be providing employment, reducing pollution, and increasing social wealth, or social benefit, et cetera. I call them external responsibilities. Generally, people consider the social responsi- bility as a corporation’s ethical standard, and the corporation can yield goodwill when people think it

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has business ethics and give it a high valuation. As people now admit that goodwill is an asset of a corporation, it could make potential profits in the future for the companies. Step by step, profit has a relationship with social benefit, and the internal responsibilities have a relationship with the external responsibilities in a corporation.

In most citizens’ view, the business ethic is equal to the corporations’ social responsibility performance, but it is not the entire meaning of the business ethic. There is a misconception that pur- suing self-interest is unethical. Actually, business ethics can be categorized into two parts: one ethic is internal responsibility, and the other ethic is external responsibility. The ethic which is internal re- sponsibility is a kind of obligation, such as doctors need to protect their patients’ information, or managers need to be loyal and honest to the shareholders. As Friedman said in his perspective, this business ethic exists because the manger is employed by the owner, hence the manager needs to be responsible to the owner. Similarly, Freeman said because the corporations have direct impacts on the stakeholders, thus the manager has an obligation to take them into account when making deci- sions. However, Heath explained it as a professional ethic, which appears because the role of manag- er appears. Ethics, which are external responsibility, are more like virtues, which means it is good to do, but people do not need to do them, like doctors go to disaster area of an earthquake to treat in- jured people, or managers decide to expand employment when the unemployment rate goes up. Briefly, these three papers of Friedman, Freeman, and Heath argued the relationship between the profits and ethics in corporations’ social responsibility, and illustrated how to balance them in their models.

Milton Friedman, combined corporate profit with social benefit, and constricted business ethics only inside the corporate responsibility. Friedman said that in the modern enterprise system,

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the right of management is separate from the right of ownership. In other words, the owner of a cor- poration can employ managers to operate the company. Therefore, the behavior of a corporation in fact is an expression of its manager’s behavior. In Milton Friedman’s view as he mentioned in “The Social Responsibility of Business Is to Increase Its Profit”, the only social responsibility of business is to use its resources and engage in activities designed to increase its profits so long as it stays with- in the rules of the game (Friedman, 2008, p.69). Corporate executives should operate the company by owners’ intentions, which is to earn more money for the owners. Managers should obey their ethics which is internal responsibility to be honest to their employers, and they cannot use money of their employers to do social responsibility based on ethics, which is external responsibility for them- selves. It is not completely right. First, Friedman claimed that the manager has a fiduciary relation- ship with the shareholder, and this fiduciary relationship is only

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