a. Does Friedman believe that business should make as much profit as possible, e

Question

a. Does Friedman believe that business should make as much profit as possible, even if through fraud and deception? How about through discrimination or polluting the environment?

b. What does it mean to say that a CEO has a “social responsibility” in his capacity as CEO? Why does Friedman cringe at this notion?

c. Should the objective of the firm be to maximize shareholder value? What other objectives might make sense?

d. Should a firm embrace value creation for transient shareholders seeking short-run gains, or for shareholders intending to hold for the long term?

e. What do Denning/Martin mean by the “expectation market” and why is it a problem?

f. Denning/Martin recommend “eliminating the use of stock-based compensation as an incentive,” instead focusing on incentives that “place customers at the center of the firm and focus on delighting them, while earning an acceptable return for shareholders.”

Under such a plan, how should a firm price its products (assuming that lower prices delights customers)?

Explanation / Answer

a.

Milton Friedman believes in stockholders theory that says that organization should earn profit with single focus of stockholders’ wealth. Only social responsibility of firm is towards stockholders as a reward of the risk taken by them. Though, Friedman never says that these profits will be earned through illegitimate means such as fraud, deception or discrimination. Because, it poses serious doubt upon the long term existence of the firm. All firms have to abide by the local laws and regulations that is to be followed by all firms, strictly for sustainable operation of business.

Even, Friedman also says that sharing of profit to the public/ society should be solely decided by the stockholders. Thus, somehow, Friedman also thinks about the contributions to society.

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