The Stockholder Vs Stakeholder Concept: What is the Purpose of a Corporation?

By
Aaron Tumy

Submitted for:
Robert Marshall Wells, Ph.D.
COMA 213
11/29/07

Abstract This paper is based off a question posed by my Business Ethics class. The question had me compare and contrast two essays, one written by Milton Friedman and one written by Edward Freeman, concerning their views on the social responsibilities of corporations. After outlining the two different arguments, I then was asked to pick the side I agreed with and support my claim.

The Stockholder Vs Stakeholder Concept: What is the Purpose of a Corporation?

What is the purpose of a corporation? It seems that the answer would be simple enough, to make or sell some service or product. Yet there is actually much debate about what exactly a corporation’s purpose is and who that corporation is beholden to. There are two prevalent concepts of the corporation; the stockholder concept and the stakeholder concept. The stockholder concept is put forth by Milton Friedman in his essay, “The Social Responsibility of Business Is to Increase Its Profit” and the stakeholder position is championed by in his essay, “A Stakeholder Theory of the Modern Corporation.” As the title suggests, the point of Milton Friedman’s essay is to convince the reader that the one and only true goal of the corporation is to increase its profits. This is to say, that any and all spending outside that goal, is a waste and letting down the investors of the company. Friedman believes that since investors own part of the company, the executives are employees of the stockholders and should do all they can to fulfill the trust placed with them to increase stock prices. Friedman puts down the claims that corporations have social responsibilities in two parts. First, he states that only people can have responsibilities. Corporations, being an artificial entity, can not have social responsibilities. Secondly, he points out that a