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Similarly to Argenti (1986), Milton Friedman (1970) argued that firms’ main responsibility is to generate profits and create value for their shareholders (i.e. their owners), as unlike people, businesses are artificial entities that have no social responsibilities or ethical obligations. In view of these considerations, it can be inferred that even though Argenti (1986) does not explicitly state that concepts such as ethics, responsibility and morals are incompatible with the business world, he certainly believes that managers should pay more attention to profit than social responsibility.
From a strictly teleological point of view, Argenti’s (1986) line of argument is certainly sound, as all businesses operating and competing in the commercial world need to generate profits in order to survive and succeed. Therefore, it follows that managers’ main goal and priority should be profit generation, which means that if they had to choose between acting responsibly and maximising revenues in order to create value for those who own the organisation, they should honour their duties by protecting their employers’ interests.
However, from a more practical perspective, real-life cases indicate that when managers focus exclusively on profit and short-term growth, they may end up making irresponsible decisions, thus triggering potentially catastrophic crises and failures. In this regard, Kirkpatrick (2009) noted that in spite of its magnitude and severe consequences, the 2007-2008 financial crisis was actually triggered by a handful of firms whose profit-driven strategies resulted in a global crisis from which many countries across the world have not yet fully recovered. Considering the negative impact that such events have not only on the general public but also on shareholders, it is evident that focussing solely on profitability is not an effective long-term strategy. Furthermore, statistics suggest that more and more people across the world are becoming increasingly interested in corporate governance and business ethics, to the extent that a significant percentage of consumers have claimed that they would rather buy from socially responsible companies than irresponsible ones. (Starr, 2013) This clearly indicates that corporate social responsibility and business ethics are highly likely to affect businesses’ reputation and performance, which is why managers should strive to make ethical and responsible decisions in order to achieve long-term profitability and success.
At this point, a question arises: if none of the above were true, why would some of the world’s largest companies waste their time and resources publishing periodical corporate governance reports aimed at reassuring stakeholders about their good practices?
Apple and Nike, for example, have both been negatively affected by scandals resulting from unethical practices aimed at maximising profits and minimising costs. (Adams, 2012; Daily Mail, 2011) As a result of that, they have had to modify their corporate strategies in such a way to guarantee more transparency and sustainability across their respective value chains. This is because recent scandals have sensitised consumers to concepts such as business ethics and corporate governance, thus pressuring businesses to ensure that their suppliers are also socially responsibly, as “ignorance” is no longer considered to be an acceptable excuse among today’s demanding and informed consumers.
In light of these observations, it can be inferred that while managers should certainly try to maximise profits and shareholder value, past corporate failures have clearly proved that profit-driven strategies are unlikely to lead to long-term profitability. Moreover, with consumers becoming increasingly demanding and concerned about environmental / social issues, it is crucial that managers should take into consideration the impact of their decisions on all stakeholders (including society, employees and the environment) in order to achieve sustainable growth and profitability.
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