Friedman -vs- Drucker

Abstract Business ethics is a form of applied ethics that scrutinizes ethical principles and moral or ethical problems that occur in a business environment. In the more conscientious marketplaces of the 21st century, the demand for more ethical business processes and actions (referred to as ethicism) is mounting. In addition, pressures for the application of business ethics are being exerted through enactment of new public initiatives and laws (Cuizon, 2009). Friedman Vs Drucker

Milton Friedman and Peter Drucker both were noted management authorities; Milton Friedman primarily was an economist and even won the Nobel Prize in economics in 1976 when the Nobel Prize held more honor than it does today. Both operated in a different time, however. Their views of ethical behavior and social responsibility cannot be seen as being complete in today’s business environment. Milton Friedman Milton Friedman (2002) has maintained, since the 1960s, that the purpose of any business is to maximize profits and so return as much value for shareholders as possible.

Friedman (2002) holds that the current trend toward greater corporate social responsibility is in direct opposition to this position: Woodbury (n. d. ) quotes the 1970 article, “The social responsibility of business to increase its profits” that appeared in a compilation. In that article, Friedman (1991) states: There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud (p. 45). Friedman (1991) clarifies his position in saying that the pursuit of profits is not the game with no rules. Rather, it is the responsibility of the organization to engage “in open and free competition without deception or fraud” (Friedman, 1991; p. 245). A very different view of the organization as a profit machine only, but it still does not meet the needs even of the organization and certainly not of the shareholders for which it is supposed to be building value. Making “as much money for their stockholders as possible” (Friedman, 2002; p. 33) was a rather straightforward activity in the past. Coupled with the absence of “deception or fraud” (Friedman, 1991; p. 245), in Friedman’s (1991) era there were few other considerations that needed to be made. Such is not the case in today’s business climate or in the face of growing globalization. It is even a shortsighted view, one that reflects the time in which it was first made. Since that time, the global market begun and continues to emerge, and competition has increased beyond all levels considered possible only a generation ago.

Corporate social responsibility (CSR) is good for business, and ultimately positively contributes to the bottom line in which shareholders have the greatest interest. According to, Professor Thomas Mulligan (1988) undertakes to discredit Milton Friedman’s thesis that the social responsibility of business is to increase its profits. He attempts to do this by moving from Friedman’s paradigm characterizing a socially responsible executive as willful and disloyal to a different paradigm, i. e. one emphasizing the consultative and consensus-building role of a socially responsible executive. Mulligan’s critique misses the point, first, because even consensus-building executives act contrary to the will of minority shareholders. More importantly, because he assumes that the mandate of a shareholder majority brings legitimacy to efforts of corporate managers to utilize corporate wealth in solving social problems. It is the role of our democratic institutions to deal with national agenda issues such as inflation, unemployment, and pollution, not that of the private sector.

Corporations and private individuals do have a role to play in enhancing the quality of the human environment, however, the author suggests a coherent means of developing that role in an effort rescue corporate social responsibility from Mulligan no less than from Friedman (Shaw, 1988). Corporate Social Responsibility Corporate social responsibility includes corporate philanthropy but extends far beyond that narrow view. At least in the United States, innovation and creativity have been the mantras of the corporate world for years.

Organizations operate under many constraints that prevent them from pursuing practices that could be more sustainable than current ones. One of those constraints arrives in the form of investment analysts. These analysts determine what will be an acceptable target for earnings per share for the current quarter. The organization had best meet these predictions, or the same analysts – observers of specific industries but well outside the organization – will recommend to their clients that they sell that company’s stock.

The result of this action is to reduce capital available to the organization, and it may drive down share price to diminish the stock’s value to other investors. Friedman’s (2002) own commitment to returning value to shareholders is a constraint working against building for the long term. This rule of operation can overshadow all other consideration. Bruno (2002) notes, “With stock prices king, managements are under mind-boggling pressure to produce profit” (p. NA).

One organizational psychologist says, “If a company wants to be around for 100 years, they should realize that producing 15% to 20% increases in earnings every quarter will have a cost in the long-run” (Bruno, 2002; p. NA) and is not sustainable. Organizations frequently complain that such close attention to quarterly reports renders them unable to give any real attention to sustainability issues not required by law, or to surpass minimum standards for environmental results of their business activities. For years, most business leaders have focused only on the bottom line.

In recent years, the most forward-thinking organizations in the global arena have come to understand that their efforts are wasted if their businesses are not sustainable over time. As example, safety shortcuts in Bhopal, India allowed Union Carbide additional short-term profits for a short time. Eventually they led to the demise of the company and destruction of corporate value, without even considering the costs of the Bhopal disaster in terms of human life. Union Carbide was able to contribute to building shareholder wealth in the short term and meet analysts’ estimates on demand.

In the end, however, it destroyed shareholder wealth and now is known as Dow Chemical. Enron cannot meet Friedman’s (1991) requirement of operating without deception or fraud. Union Carbide still behaved unethically even though it did not behave illegally. According to (Friedman, 1970), the difficulty of exercising social responsibility illustrates, of course, the great virtue of private competitive enterprise – it forces people to be responsible for their own actions and makes it difficult for them to exploit other people for either selfish or unselfish purposes. They can do good, but at their own risk. Peter Drucker

Peter Drucker accuses business ethics of singling out business unfairly for special ethical treatment, of subordinating ethical to political concerns, and of being, not ethics at all, but ethical chic. We contend that Drucker’s denunciation of business ethics rests upon a fundamental misunderstanding of the field (Hoffman and Moore, 1982). The difference is behaving with integrity and in accordance with laws and regulations of the more developed country (in Union Carbide’s case the US). Years ago Peter Drucker observed, “Be ready or be lost; if you don’t think globally you deserve to be unemployed and you will be” (Witt, 2000; p. 5). As Drucker (1981) muses what may constitute business ethics, he excludes acknowledgement of integrity. Drucker (1981) strives to demonstrate that Lockheed was “forced” into bribery to get the Japanese to buy its aircraft without fully acknowledging that Lockheed did indeed have a choice. It could be said that businesses making early entry into China were “forced” to take part in the bribery that was standard procedure there. Management assured that the company would be ostracized and would not be able to function if it refused to make the “grease payments” requested by local officials.

Becton-Dickinson refused, pointing to its own code of conduct (Chen, 2001). Not only did the company not suffer because of its anti-bribery stance, it gained a local respect that other multinational companies did not. This exemplifies the integrity component that Drucker’s (1981) view of ethics excludes. Conclusion Milton Friedman operated in another era, one in which results were measured only in dollars and in which many detriments of corporate activity were still unknown. All businesses are required to operate as efficiently as possible in today’s business environment, and greater efficiency can be attained through a variety of channels.

The bottom line is that both Friedman (1991) and Drucker (1981) are correct, but only to a point. Neither provides a comprehensive view on social responsibility or business ethics. In these days and times, everyone is expected to have the appropriate ethical behavior, but we all know the businesses continues to fall short in this area, due to greed. References Bruno, M. (2002). Breaking Point: The mania for maximizing profits is taking its human toll. And that toll is costly to banks. But, in the current environment, can anything be done about it? US Banker, p. NA. Chen, M. (2001).

Inside Chinese Business: A Guide for Managers Worldwide. (Boston: Harvard Business Press). Cuizon, G. (2009). What is Business Ethics? Ethical Principles Practiced in Business. Retrieved from http://businessmanagement. suite101. com/article. cfm/what_is_business_ethics#ixzz0eEPiWJSB on January 29, 2010. Dobson, J. (1989). Corporate Reputation: A Free-Market Solution to Unethical Behavior. Business and Society, 28, p. 1. Retrieved from http://bas. sagepub. com/cgi/pdf_extract/28/1/1 on January 29, 2010. Drucker, P. F. (1981). What is business ethics? National Affairs, 63. pp. 18-36. Retrieved on January 29, 2010 from http://www. ationalaffairs. com/public_interest/detail/what-is-business-ethics. Friedman, M. (2002). Capitalism and Freedom: Fortieth Anniversary Edition. (Chicago: University of Chicago Press). Friedman, M. (1991). The social responsibility of business to increase its profits. In Ethics, Leadership, and the Bottom Line, Charles Nelson and Robert Caveny, eds. (Croton-on-Hudson, New York: North River Press), pp. 32, 33, 122-124, 126, 133, 245 Friedman, M. (1970). The social responsibility of business is to increase its profits. The New York Times Magazine. Hoffman, W. M. , and Moore, J. M. (1982).

What is business ethics? A reply to Peter Drucker. Journal of Business Ethics 1 (1982) 293-300. Retrieved from http://www. springerlink. com/content/l37t8p6180084058/fulltext. pdf? page=1 on February 8, 2010. Shaw, B. (1988). A Reply to Thomas Mulligan’s “Critique of Milton Friedman’s Essay ‘the Social Responsibility of Business to Increase its Profits. ‘“ Journal of Business Ethics, 7(7). Retrieved on January 29, 2010, from http://philpapers. org/rec/SHAART-2. Witt, S. (2000). International Business Can Be Social Minefield. San Diego Business Journal, 21(25), p. 25. Woodbury, M. (n. d. ). The Bout of the