Stakeholders Theory: A Comparison of Friedman, Freeman, and Mathews

This essay provides an overview of stakeholder theory, beginning with Milton Friedman's shareholder-centric approach to corporate social responsibility (CSR), which emphasizes profit maximization and individual responsibility for social concerns. It contrasts Friedman's views with those of Freeman and Mathews, who advocate for a stakeholder-inclusive approach, considering the interests of various groups affected by a company's operations. The essay explores the ethical dimensions of stakeholder analysis, the dilemma posed by Goodpaster and Mathews regarding corporate power, and the strengths and weaknesses of different stakeholder theories. It also touches upon the role of CSR in modern business, including its integration into strategic decision-making and the importance of development cooperation. The conclusion suggests that a balanced approach, considering both profit and social impact, is crucial for responsible business practices.

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Stakeholders Theory
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STAKEHOLDERS THEORY
Introduction
Stakeholders Theory
Milton Friedman took the shareholders approach in dealing with social responsibility of a
company. He was of the opinion that a company should have nothing to do with social
responsibility to the society or the public because the only responsibility of the company is to
increase its profit and increase the shareholders wealth (Haerens&Zott, 2014). The economist
further suggested that the shareholders in their private capacity are the ones responsible for
the social responsibility. In his book called Capitalism and Freedom. He introduced the
concept of totalitarianism where he argued that when a company concerns themselves in
community development rather than making profits, the company suffers.
Friedman suggests that the business has only one social responsibility and this is to use its
resources to make engagements that increase its profits and increase the shareholders wealth.
However, the business must stay within the rules of the game and those are to engage in open
and super free competitive business model without fraud and deception (Hunnicutt, 2009).
The stakeholder’s theory is inconsistent with corporate social responsibility. Some argue that
the theory is contradictory as in an instance of a disaster like flooding or hurricane, the
company is obligated to provide goods and services to help the same stakeholders it is
required not to help according to Milton Friedman. This will moreover bolster a better
relationship between the company and the stakeholders and it would be in its best interest.
According to freeman and Evan, they advanced the Rawlsian social contract in stakeholder’s
theory. It has three main parts which fails to specifically bolster the theory of stakeholders
and fails to demonstrate any rationality of institutional rules adaptation (Business Case for
Corporate Social Responsibility, 2009). It argues on only competitive and profitable

STAKEHOLDERS THEORY
companies are able to contribute in the long term to sustainable development by creating
wealth and employment without endangering the social and environmental needs of society.
In fact, only profitable companies are sustainable and have the capacity to carry out socially
responsible practices. Traditionally this responsibility has been translated into the search for
maximum benefit and maximum value for the shareholder as well as optimal efficiency and
productivity (Corporate Social Responsibility, Corporate Restructuring and Firm's
Performance, 2010). In other words, maximize profits and production with the resources that
are available.
Stakeholder’s analysis as a process of ethical values
A lot has been written about stakeholder analysis as a process in which ethical values are
introduced into decision making by the management. According to Goodpaster and Mathews
a company is morally obligated to provide CSR activities to its stakeholders.CSR is related to
the "business ethics" movement and that of fair Trade. However, the philanthropic actions of
a company or a entrepreneur are related to their core activities, while CSR is one of the
dimensions of the main activity of the company. CSR is founded on ethics in business, but it
is not confused with it because it goes beyond the mere formulation of values and ethical
postulates (CSR is the implementation of a business ethic, generally associated with strategic
business purposes). What is known as fair trade is a type of business activity that vindicates
the fact of being socially responsible, but not the only one.
The concept of socially responsible investment (SRI) is related to that of CSR, but focused on
the investor's decision, not the entrepreneur's. The concept of socially responsible innovation
is the convergence of philanthropic ends with needs for the development of new technologies
and products (for this, donations of the company also serve as low-cost tests or tests).

STAKEHOLDERS THEORY
The concept of socially responsible consumption (CSR) focuses on a perspective of
consumers, insofar as they enter among their criteria of purchasing decision the ethical,
social, labor, ecological and solidarity. The great problem for its effective development lies in
the lack of information and transparency of the companies. It is often simplified to exclusion
criteria, that is, stop buy products and services from companies whose unreliable behavior
has appeared in the press (Gottschalk, 2011).
The concept of socially responsible territories (SRT) is linked to programs, in promoted by
local public administrations, to develop projects for cooperation between the public sector,
the business sector and the third sector (NGOs). Finally, the concept of social corporate
marketing (SCM) is very linked and part of the idea that all marketing actions can include,
and even be essentially linked to interests that not only include the goal of who makes the
investment, but of entities with which it interacts and that serve as a another way to improve
the quality of life of the community(Alvintzi & Eder, 2010).
The dilemma of Goodpaster and Mathews/ Role of corporation to stakeholders
Kenneth E. Goodpaster and John B. Mathews, Jr., among others, have formulated the
following dilemma: multinational corporations are so powerful that it is dangerous for them
to interfere in social and political issues, but it is also dangerous that they only dedicate
themselves to maximize their profits (Gottschalk, 2011). Consequently, if entering into social
and political issues, they have certain possibilities to increase their profits, they will simply
do so.
There are certain international organizations that are responsible for delimiting possible the
theoretical concept of CSR, whose guidelines serve as guidance for the companies that decide
to travel along this road (Ravi Raman &Lipschutz, 2010). Among the most prominent are:

STAKEHOLDERS THEORY
• Global Compact of the United Nations
• Global Reporting Initiative (Initiative for Global Accountability)
In addition, there are other national entities and initiatives with a specialization in
issue of CSR, which are contributing in a decisive way to the creation and dissemination
of a responsible culture among the organizations that make up the business fabric of
each country (Hill, Schilling and Jones, n.d.).
Strengths and weaknesses of Goodpaster shareholder theory
They highlight the paradox of companies harmful to health or to the environment that claim
improve their reputation through a rhetorical discourse about CSR (for example, a cigarette
company that buys tobacco from poor farmers to counterbalance the criticisms about lung
cancer). These type of companies consider CSR as a form of advertising (Ravi Raman
&Lipschutz, 2010).
In the same way, the criticisms that can be found are directed to how the company capitalist
builds a new paradigm in terms of the direct intervention of capital in what could be called
"social risk management" or social conflict. That is to say: that in the face of a process of
accumulation and concentration of capital on a large scale has increased the gap of income
between rich and poor(Arnold, 2014). Subsequently, increase in poverty due to this
concentration of wealth in a few hands, has generated exclusion and rising social conflicts.
set their patterns of behavior and how to relate it to society, establishing own standards
(Gond& Moon, 2012).
Other criticisms coming from the union sectors are part of this vision on CSR, and to this
they add their criticism focused on the gradual abandonment on the part of the transnational

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companies of "tripartism" within international organizations as the International Labor
Organization (ILO), where this practice works based on the participation of the business,
workers and State sectors in the aforementioned body for the issuance of binding resolutions
(Wang, n.d.).
CSR is not necessarily a form of legal liability, because may well not be provided for in the
laws and simply rest on the free decision of the companies. However, even when it is not
supported by the law, the violation of A social commitment can cost companies strong
criticisms from the public opinion (media sanctions) and even a loss of shareholders
(sanctions) stock exchange). Some case studies illustrate how a company usually has
commercial interest in being socially responsible (Jones, 2013).
This does not constitute a response to criticism of Friedman (because the principle of
Friedman, the principle of profit, continues to be fulfilled), it modifies it, because it is
possible to obtain more profits when managing in a socially responsible. In modern
companies, Social Responsibility Entrepreneurship is more than a set of specific practices, it
is rather a program integrated and recognized "socially responsible" practices and policies,
which supports making decisions and leads to long-term business success (Jones, 2013). The
company, without CSR continues to function as an entity whose main objective is profit, but
adapting to the demands of a new market increasingly concerned with the social and
ecological problems that it produces. The ultimate goal would not be to alter production
modes, but systemically integrate their harmful effects and contain them by offering
programs that benefit the community(D. nselmi, 2011).
Much of what is related to CSR is a moral issue. In this sense, moral issues may well be
defined by whoever invokes it. For example, companies they cannot establish parameters of
what they consider participation should be Social. Something more appropriate would be that

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the sector referred to above said participation - in this case social sectors (Phillips &
Freeman, 2011).
This compares the cost of using resources with obtaining results. Costs usually include the
cost of raw materials, energy, financial resources, labor, etc., and income between the results.
Certainly, some "hidden" costs should be included, which are now paid by society as a whole
but should be borne by the person who generates them, such as the deterioration of the
environment, the cost of sick leave, the stress of management or the moral degradation of
employees. Even today, environmental, safety and health or social requirements are
marginalized, based on supposed economic reasons. It was agreed that things could be done
better, but then they came out too expensive. The argument, although perhaps
circumstantially true, was basically false. They did not come out as expensive due to the
tolerance of society, in other words, the damage caused by bad environmental, labor or social
management was not taxed (Wang, n.d.).
Development cooperation
We cannot reduce the issue to the fact that the social action of multinational companies can
be interpreted in the key of cooperation for development, the private sector has a decisive role
to play in the strategy of public-private partnerships to address the challenge of development
in the more backward countries (Brigham et al., n.d.).
However, assuming that company policies do not take into account geographic borders, it can
be considered that, in parallel with the dimension of the local community, there is a broad
social environment, whose interests are not easy to identify, since the interlocutor cannot be
identified. To represent them However, CSR presupposes a commitment to take these
interests into account.

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Conclusion
The companies, together with other actors, have a certain responsibility for the current
situation of the people and peoples who are affected by their actions. The only way to
compensate for this diffuse impact is to accept a commitment to human rights and those
values that guarantee dignified working and living conditions. (Durant, 2009)
According to stakeholder’s theory advanced by these philosophers, stakeholders in their
private capacity are the ones responsible for the social responsibility. In his book called
Capitalism and Freedom, Friedman introduced the concept of totalitarianism where he argued
that when a company concerns themselves in community development rather than making
profits, the company suffers (Thompson, 2010).
Best approach
Fried man theory of stakeholder is much better than Mathews,Freeman and Evan. For
freeman he argued that the corporations primary function is to utilize its resources to
maximize its profits.He further argues that the stakeholders should be socially responsible in
their private capacity. When the company combines both making profits and CSR it lead to
totaliarism. This means that freedman theory is better because maximization of profits is
leads to higher dividends to stakeholders who in turn give back to the society(Idowu & Leal
Filho, 2009).

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