Profits and social responsibility
In 1920, large corporations established pension and unemployment compensation funds, they limited working hours, raised thewages, built houses and churches and even participated in a charity. According to Neil J. Mitchell it was caused by a legality problem that came across to corporations. Furthermore,large corporations introduced “welfare capitalism” in order to create a good public reputation. As Henry Ford said well-paid workforce is more loyal, while educated one is moreefficient.
Theorists of free market resisted this approach as they thought that companies used social responsibility in order to generate more profit. As for Milton Friedman thisapproach was unbusinesslike. He thought that it’s corporate executive’s responsibility to conduct the business and make as much money as possible according to the company’s code ofethic.
In order to reduce the costs many companies hire less-qualified, long-term unemployed workforce or people from ethnic minority. On the word M. Friedman this is veryunprofitable and this means the waste of stockholders’ money because stockholders prefer to get more dividends and live in a much polluted society with unemployed people.
M.Friedman’s opinions were approved by John Kenneth Galbraith in his book “the New Industrial State”. According to him managers are responsible for all employees as well as for suppliers,customers and stakeholders. Companies which appreciate its stakeholders’ opinions try neither pollute the environment by its activities, nor close the factories and increase theunemployment. This was the stakeholder’s approach that suggested that company’s board of directors should be presented by its customers, suppliers and members of the local community.