Freeman vs Friedman

Opinion on Stakeholder Theory

In our readings last week, Freeman and Friedman have two very contrasting opinions on the goals and responsibilities of a business. Freeman supports the Stakeholder Theory in saying that anyone who has a stake/claim in the firm has the right to be treated as a participating determining factor in the direction of a firm. They are not just a means to the end. Friedman pretty much says the opposite. He believes that businesses have no responsibility outside of those who have ownership in the company. In devising my own opinion, I lean more towards Freeman’s argument although I think the two are more overlapping than is initially apparent.

According to Freeman, stakeholders can be anyone; employees, stockholders, competitors, customers, the local community, etc. The firm is constantly asking the question “For whose benefit and at whose expense should the firm be managed?” What Friedman failed to realize is asking these types of questions may further his ultimate goal of making more profits. In my opinion, people like organizations which are prevalent in the community and organizations that help the underdogs of society. These types of participation give the company a face to go along with their big business name. We are creatures of habit and we like things we are familiar with. Considering the stake of a group such as the local community can ultimately be a financial issue. Although the local community is not a stockholder by definition, there are people within it that have the potential to become stockholders. Even if Friedman is black hearted enough to find no value in considering the needs of those outside ownership, he certainly should be able to take liking to the idea of this long run boast in PR and therefore profits.

Another stakeholder group Friedman may have overlooked is the employee segment. Happy workers are good workers. Good workers are more effective and efficient. Better efficiency and effectiveness mean more profits. If Friedman utilizes this logic to his advantage (this logic supported by the Stakeholder’s Theory) he may be able to yield better results to the owners he is so indebted to. The groups are all interrelated.

I like the idea presented in the Stakeholder Theory that there are multiple groups to consider, however, I’m not sure I completely agree with the no primacy part of it. I truly believe the groups are interrelated and affect one another, but I do believe sometimes you need to pick one group’s values over another since they often do not sync. In this case you would have to choose one group over another and it is only natural to have primacy.

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2 Responses to Freeman vs Friedman

  1. nrz002 says:

    You make a valid point when saying that Friedman failed to realize that his ultimate goal of increasing profits would benefit from asking questions such as, “For whose benefit and at whose expense should the firm be managed?” I think a good example of this is shown in the Nike case when owner Phil Knight attempted to ignore labor issues bestowed by contractor factory management abroad. With media attention to the issue, Nike’s revenues ended up taking a drastic hit from this image problem. This is what happens when a Friedman perspective is taken when worrying only about profit and not the company’s stakeholders (employees in Nike’s case).

  2. kjc013 says:

    I think it is a very good point when you mention that, by viewing stockholders as more important than stakeholders, Friedman overlooked employees as an important group to consider. As you mentioned, a happy employee is a productive employee. There has been a huge amount of research with regard to the satisfaction of workers compared to their productivity levels, and there is without a doubt a positive correlation between the two. Perhaps the best thing for Friedman to do if he wants companies to continue valuing stockholders over stakeholders is to encourage them to look into the satisfaction of various other important groups as well, just to make sure the employees are happy and consequently the company is running as efficiently and effectively as possible.

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