The SHAREholder view of Corporate Responsibility

Question 1

Friedman’s Model of Corporate Responsibility

Answer 1

Responsibility of the corporation:
-to make as much money as possible
-so long as it stays within the rules of the game
Friedman agrees with Adam Smith who argues that the general good is best achieved by allowing individuals to pursue their own self-interest (invisible hand)

Question 2

Friedman and charitable donations

Answer 2

• Corp execs should not give to charities/socially valuable projects on behalf of the corporation
• This is because they are spending someone else’s money (shareholders, customers, employees)
• More efficient to allow individuals to spend their own money
• Charitable spending imposes a tax on company money
• Corp execs have no expertise in these areas (is area of government)

Question 3

Friedman and government/laws

Answer 3

• The law alone provides the boundary of acceptable business behaviour
• It is the responsibility of government to establish a framework of law within which individuals are free to pursue their own self interest

Question 4

Arrow and Friedman

Answer 4

• Arrow agrees with the invisible hand argument, however this position requires certain market assumption (e.g. many buyers/sellers, homogeneity of product, perfect info etc)
• Arrow argues there are two circumstances where sole pursuit of profit does not efficiently allocate resources: (1) externalities - harms imposed on others, (2) information asymmetry - e.g. patient and doctor
• Arrow argues more gov regulation is required in these areas to increase efficiency

Question 5

Smith/Friedman and Globalisation

Answer 5

• Were writing at a time when business activities were conducted within national borders
• Today many businesses are headquartered in developed nations but do business in developing nations
• Solid legal framework assumed by Smith/Friedman may be lacking in these instances

Question 6

Consequences of Globalisation - Wolf

Answer 6

• Wolf argues that only those developing countries that have participated in globalisation have benefited from it
• As a result of globalisation, global inequality has fallen, proportion of extreme poverty has fallen, poor are better off in terms of life expectancy, literacy etc

Question 7

Globalisation and government regulation

Answer 7

• Dilemma faced by governments is that it is easy for MNCs to relocate to other countries and take advantage of less regulation and more favourable tax regimes
• Leaves governments with the choice between: under-regulate business, or have no business
• In globalised world, Friedman’s narrow view seems clearly inadequate (stakeholders may be in many countries) from an ethical perspective - e.g. environmental and human rights abuses in developing countries

Question 8

How could we “internationalise” Friedman’s position?

Answer 8

Corporations should be able to freely maximise profits within the constraints of internationally recognised (and enforceable) laws and regulations that provide for an ethically acceptable framework for MNCs
-OECD guidelines on MNCs are closest thing we have

Question 9

According to the OECD Guidelines for Multinational Enterprises, what should MNCs do/not do?

Answer 9

• contribute to economic, social and environmental progress in the countries
• respect the human rights of those affected
• encourage local building and capital formation
• refrain from seeking exemptions from regulatory framework
• refrain from inappropriate in local politics

Question 10

Limitations to OECD guidelines

Answer 10

• They are recommendations to governments, but observance is voluntary
• Governments have the right to prescribe the conditions under which MNCs operate within their jurisdictions
• Global warming is an example of how the framework fails

Question 11

Alternative view: Maitland

Answer 11

Maitland offers a utilitarian justification for letting the market determine wages and conditions.

• Compared to alternatives, there will be fewer costs
• Low cost labour may be the only comparative advantage these countries enjoy
• Artificially set wages and conditions may curtail international investment in developing countries
• Higher wages would reduce employment there
• example of countries such as Singapore and Korea, which started by producing labour intensive goods, now skill-intensive high value items