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Freeman vs. Friedman

In: Business and Management

Submitted By macejr
Words 1854
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Freeman vs. Friedman In their theories of how a business should operate, R. Edward Freeman and Milton Friedman hold virtually opposite beliefs as to what businesses’ responsibilities should be. In favor of the Stakeholder theory, Freeman believes that any person or organization that has a “stake” in the business should also play a role of participation in the business’s actions and decisions. In the other corner of the ring stands Milton Friedman, who holds the belief that said business is only responsible for those that actually own stock in the business – the owners, or stockholders. A strong believer in his reconceptualized Stakeholder Theory of the Modern Corporation, R. Edward Freeman believes the key to success in business is several stakeholders working together in a sort of interconnected “corporate system”. Freeman begins his argument by raising a simple question: For whose benefit and at whose expense should the firm be managed? To answer this question, Freeman attempts to explain why managerial capitalism no longer works. He notes, “The basic idea of managerial capitalism is that in return for controlling the firm, management vigorously pursues the interest of the stockholders” (Freeman, 38). Freeman begins to attack this idea of managerial capitalism with several arguments pertaining to why this form of capitalism no longer can work. He argues that corporations act with limited liability for their actions and remain seemingly immortal since the existence of the business “Transcends that of its members” (38). What he means by this is that if the business does something that is seemingly illegal, or something the government or public does nott like, the members of the business are the ones who are punished, not the business itself; therefore, the business survives. Under this managerial form of capitalism, management does everything in their

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