SEAN MCALEER

FRIEDMAN’S STOCKHOLDER THEORY OF CORPORATE MORAL RESPONSIBILITY
(Accepted 15 November 2002)

ABSTRACT. In this paper I critically discuss Milton Friedman’s classic article, “The Social Responsibility of Business is to Increase its Profits.” Friedman offers several arguments for his stockholder theory of corporate moral responsibility, according to which a corporation’s only moral responsibility is to promote the financial well-being of its stockholders. I first consider an inconsistency in his statement of his position – namely, the distinct and non-equivalent constraints he places on profit-maximization (“the rules of the game” and “the rules of society”). I then turn to a consideration of six arguments Friedman gives to support his theory, spelling them out in detail and showing that none of them is sound. I conclude with a brief intuitive argument against his theory. KEY WORDS: Agent-Principal Argument, Artificial Persons Argument, corporate moral responsibility, critical thinking, Free Society Argument, Milton Friedman, Personal Responsibility Argument, rules of society, rules of the game, stockholder theory, Taxation Analogy Argument

INTRODUCTION Milton Friedman’s “The Social Responsibility of Business is to Increase its Profits” (Friedman, 1970) is a staple in most introductory business ethics courses. Friedman articulates a position that many businesspeople and business students are sympathetic to, that a business’s only responsibility is to maximize wealth for its stockholders. Whatever the popularity of his view, his arguments for it are far from compelling. In what follows I consider just what his view is, noting that his statements of it are not equivalent. I then reconstruct Friedman’s arguments and show that none is sound – some, indeed, are quite obviously unsound. I conclude by offering an argument against his stockholder theory of corporate moral responsibility.

Teaching Business Ethics 7: 437–451, 2003. © 2003 Kluwer Academic Publishers. Printed in the Netherlands.

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FRIEDMAN’S POSITION As Thomas Carson pointed out in “Friedman’s Theory of Corporate Social Responsibility” (Carson, 1993), Friedman’s two statements of his position are at odds with each other. Friedman’s opening statement of his view is that
a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of society, both those embodied in law and those embodied in ethical custom. (p. 51)1

He closes his article by quoting the statement of his view he gave in Capitalism and Freedom (1962, p. 133):
there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. (p. 55)

I do not wish to appear captious, but since Friedman himself complains that his opponents’ views “are notable for their analytical looseness and lack of rigor” (p. 51), it is only fitting that we carefully scrutinize his view: what is sauce for the goose is sauce for the gander, after all. It should be clear that these statements of Friedman’s view are strikingly different in several ways. First, while the first formulation allows for the corporation to seek to promote the interests of non-stockholders, provided that this is what the stockholders wish,2 the second formulation rules this out. That Friedman is likelier to embrace the first formulation is suggested by his belief that management is the agent of the stockholders; surely an agent must do her principal’s bidding, even if her principal does not wish to maximize her own well-being. Let us suppose, though, that Friedman is correct in his empirical claim that the stockholders want to make as much money as possible.3 A second noteworthy difference between his formulations is the different constraints they impose on profit-maximization. What “the basic rules of society” call for and prohibit seems intuitively different from what “the rules of the game” call for and prohibit – at least if we take “the rules
1 All references are to Friedman 1970 unless otherwise noted. 2 Obviously, there are technical problems to be worked out here. Must it be the unan-

imous wish of the stockholders? Would the wishes of a bare majority suffice? Or perhaps some sort of super-majority, such as is required to override a Presidential veto? 3 For at least one counter-example to Friedman’s claim, former Clinton Labor Secretary Robert Reich says “I don’t want Microsoft to maximize the value of my shares at the expense of my values as a citizen” (1999).

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of the game” to mean the actual practices obtaining within an industry. For example, a restaurant owner who balks at bribing an inspector or paying a mobster for protection may be failing to play by the rules of the game, though she is abiding by the law in doing so. Or, consider the response of Credit Suisse First Boston (CSFB) to charges made with respect to its underwriting of initial public offerings:
Securities regulators and federal prosecutors have been gathering information from First Boston and other investment banks about how they sold the shares and whether they extracted promises from customers to buy more shares at higher prices, a practice that would be illegal. The firm has said that it did not deviate from standard Wall Street practice. (McGeehan, 2001)

Whether CSFB’s actions are ethically permissible depends on which of Friedman’s two constraints on profit maximization we adopt. Suppose CSFB’s actions are illegal but are within the rules of the game; since the rules of the game may not be the rules of society (i.e., the laws), it would seem that Friedman’s theory gives contradictory judgments about the ethical permissibility of CSFB’s behavior. It may be, though, that Friedman does not intend this everyday sense of “the rules of the game.” Indeed, in Capitalism and Freedom he writes that even in a truly free marketplace the government is still needed: “government is essential both as a forum for determining ‘the rules of the game’ and as an umpire to interpret and enforce the rules decided upon” (1962, p. 15), a view he confirms throughout the book’s second chapter, “The Role of Government in a Free Society.” Suppose, then, that “the rules of the game” are those set by statutory and administrative law. Thus the mere fact that a practice is standard is not normative: one can engage in standard practices and still violate the rules of the game. Even so, there remains the problem that Friedman takes the basic rules of society to be “those embodied in law and . . . ethical custom” (p. 51; my emphasis). I think it is plausible to take these ethical rules to determine a level of moral decency below which it is impermissible to fall. If so, then these will be largely, if not exclusively, negative duties not to harm or injure. Fulfilling one’s negative duties merely guarantees that one has not acted immorally and has thus avoided blame. If one fulfills what one takes to be one’s positive duties to actively promote the well-being of others, one has gone well beyond what morality minimally requires – one is a good, rather than merely a minimally decent, Samaritan. Plainly, on Friedman’s view, a corporation does not have positive duties to promote the well-being of non-stockholders. What is not so plain is whether Friedman allows for extra-legal negative duties towards nonstockholders. My sense is that, for Friedman, corporate morality reduces

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to legality, and thus that extra-legal negative duties do not constrain profit-maximization. Consider his example of “mak[ing] expenditures on reducing pollution beyond the amount . . . that is required by law” (p. 52). Friedman discusses this as a positive duty, the goal of which is “to contribute to the social objective of improving the environment” (p. 52), but one can, more accurately, view this as a negative duty not to harm others. After all, the problem is not that pollution merely fails to benefit others, but that it causes them harm. Since Friedman thinks that a corporation ought not seek to minimize harm below the legally acceptable level, it follows that corporations do not have extra-legal negative duties to non-stockholders. Thus it seems that “ethical custom” constrains profitmaximization only to the extent that ethical custom is reflected in the law. Consider, for example, The Southern Company, many of whose power plants have a grandfather-clause exemption from the provisions of the Clean Air Act. Presumably, the company knows that its pollution is harmful – why else would stricter limits have been established? – but since it is legally permissible for it to pollute at unsafe levels and thus knowingly harm others, it would appear to be morally permissible as well, by Friedman’s lights; indeed, it would be morally obligatory, by his lights. The company would be acting against the stockholders’ best interests if it upgraded its plants or built newer, cleaner ones, so long as it is more profitable to maintain its older, dirtier plants.4 Thus I take Friedman’s view to be that management’s only obligation is to promote the interests of the stockholders, within the bounds of the law. It has neither positive nor extra-legal negative duties to non-stockholders.

FRIEDMAN’S ARGUMENTS The Artificial Persons Argument Let us call the first of Friedman’s arguments “the Artificial Persons Argument.” It is not explicitly stated by Friedman, but it seems to be lurking beneath the surface of the following passage:
What does it mean to say that “business” has responsibilities? Only people can have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities, even in this vague sense. (p. 51)
4 The Southern Environmental Law Center (http://www.selcga.org) is a helpful source

of information on this issue.

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While Friedman seems to be arguing against the idea that business as a whole has moral responsibilities, one can without too much distortion take him to argue that individual businesses do not have moral (i.e., extra-legal) obligations. Spelled out rigorously, the argument goes: P1 P2 C1 P3 C2 Corporations are artificial persons. Artificial persons can have only artificial responsibilities. So, corporations can have only artificial responsibilities. But moral responsibilities are not artificial responsibilities. So, corporations cannot have moral responsibilities.

The argument appears to be valid, but in fact it suffers from a crucial equivocation on ‘artificial’. In P1 (and thus P2 and C1), ‘artificial’ is opposed to ‘natural’, so P1 asserts that corporations are the result of artifice: they are constructed entities. “A corporation,” Justice John Marshal wrote in Trustees of Dartmouth College v. Woodward (17 US 518 (1819)), “is an artificial being, invisible, intangible, and existing only in contemplation of law.” This is plainly the sense of ‘artificial’ in P1, P2, and C1. But in P3, ‘artificial’ seems to mean not “non-natural” but “non-genuine.” To deny that moral responsibilities are artificial is to assert that they are genuine and binding on us. They are not, in short, imaginary. Since ‘artificial’ means different things in C1 and P3, the argument commits the fallacy of equivocation and thus is invalid. In addition, the Artificial Persons Argument begs the question. P2 asserts that the only responsibilities an artificial person, such as a corporation, has are those spelled out in the document by which it comes into being. But why would anyone except a committed stockholder theorist accept such a premise? No one who subscribes to the stakeholder theory of corporate moral responsibility – according to which the interests of all stakeholders, not just the stockholding stakeholders, are to be considered – would accept P2, for a stakeholder theorist holds that corporations do have extra-legal duties to non-stockholders. While it is true that Marshall holds that “[b]eing the mere creature of law, [a corporation] possesses only those properties which the charter of its creation confers upon it . . .” he fills in the ellipsis with “either expressly or as incidental to its very existence.” Thus if we take the corporation’s moral personhood seriously, then its having extra-legal duties would be part and parcel of its very existence. Though the argument doesn’t formally beg the question, its conclusion does rest on a premise that is as doubtful as the conclusion, and is as doubtful for the same reasons, so the Artificial Persons Argument begs the question materially. Again, it may be that Friedman did not intend the argument I have attributed to him. If so, then my objections are moot. But it is not implau-

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sible that Friedman has some such argument in mind, and to the extent that he does, my criticisms are germane. The Agent-Principal Argument Friedman’s second argument is the Agent-Principal Argument, which is perhaps the most important argument in the article. There can be no doubt that Friedman makes this argument, for he asserts it quite straightforwardly: “in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation . . . and his primary responsibility is to them” (p. 51). Fully reconstructed, the argument goes: P1 P2 C Management is the agent for the stockholders, who are the principals. An agent’s primary responsibility is to protect and promote the interests of her principal. So, management’s primary responsibility is to protect and promote the interests of the stockholders.

P2, of course, is implicit, but there is no problem with attributing it to Friedman, not least because it is necessary for the deductive validity of his argument. Though the argument is valid, there may be doubts about its soundness. John Boatright, for one, argues that management is not the agent for the stockholders, because the conditions necessary for agency – mutual consent to the agent-principal relation, the agent’s power to act on the principal’s behalf, and the principal’s power to control the agent – are not met (Boatright, 1994, pp. 80–81). There seems to be some tension between Boatright’s second and third points: he argues that management is not the stockholders’ agent because management cannot, for example, merge the corporation without stockholder approval; but then the principal is able to control the agent (in certain matters, anyway). It’s hard to see how Boatright can make both claims simultaneously. Moreover, it may be that Friedman intends the agency relation in not quite so literal a sense. I suggest that even if we waive Boatright’s objections and grant the truth of Friedman’s premises, the argument still fails to adequately support Friedman’s view. That is, even if the Agent-Principal Argument is sound, it is too weak to support Friedman’s theory of corporate moral responsibility; indeed, it is guilty of an ignoratio. Friedman’s position is that management’s only responsibility is to protect and promote the interests of the stockholders: “there is one and only one social responsibility of business – to use its

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resources and engage in activities designed to increase its profits so long as it stays within the rules of the game” (p. 55). But the conclusion of the Agent-Principal Argument is that this is management’s primary responsibility. Not only are ‘primary’ and ‘only’ not synonymous, but ‘primary’ leaves open and indeed suggests the possibility that there are other interests to be considered, albeit not primarily. Consider a non-egalitarian stakeholder theory in which the interests of all stakeholders are given genuine, but unequal, consideration: the interests of the non-stockholding stakeholders are considered independently of how their satisfaction promotes the interests of the stockholders, though the interests of the stockholders are given more weight than the interests of the non-stockholding stakeholders. Something like this seems to be Kenneth Goodpaster’s view, in which management has fiduciary duties to the stockholders, and morally significant, non-fiduciary duties to the other stakeholders. Unsurprisingly, these are extra-legal, negative duties that include “the duty not to harm or coerce and duties not to lie, cheat, or steal” (Goodpaster, 1991, pp. 72–73). Consider also a view in which management has positive duties to promote the interests of the non-stockholding stakeholders (and not merely negative duties not to harm them), but in which the to-be-promoted stakeholder interests have less weight than the interests of the stockholders. Suppose a company can further maximize an already healthy profit by relocating a plant. On Friedman’s view, of course, it must do so (provided that the negative publicity, etc., is factored in). But on the view I am suggesting, if the corporation is already making a healthy profit – perhaps well above the industry norm – management could reason that increasing the annual return from 15% to 16% isn’t worth the harm moving the plant would cause the employees and community. The stockholders are already being well served, management reasons, so the interests of the other stakeholders can be promoted without harming the stockholders. The interests of the stockholders, while not being promoted maximally, are being promoted to a satisfactory degree – indeed, to a very high degree. The problem with the Agent-Principal Argument is that, far from supporting the stockholder theory, its conclusion is consistent with the non-egalitarian, satisficing version of stakeholder theory sketched above. Moreover, if we attempt to modify P2 (and C) be replacing ‘primary’ with ‘only’, the argument is either unsound or question-begging. It may be unsound for the reasons Boatright gives, but even if we grant that the management-stockholder relation is an agent-principal relation, the argument is still unsound because it is false that an agent’s only duty is to

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her principal. A stockbroker, for example, often acts as the agent for her client, but she also has duties to her employer: though it would maximally promote the client’s well-being for the broker to execute a trade without any commission, it is not in the firm’s interest that the broker do so. On the other hand, the argument begs the question, because no stakeholder theorist would accept the reformulated version of P2. Thus Friedman argues for the wrong conclusion, since the issue is not whether management’s primary obligation is to the stockholders, but whether management’s only obligation is to the stockholders. So even if we grant that the Agent-Principal Argument is sound, it is too weak to support Friedman’s view. The Taxation Analogy Arguments The next argument is related to the Agent-Principal Argument, but it is independent of it. Here Friedman argues that
if [the executive] spends the money in a different way than [the stockholders] would have spent it . . . he is in effect imposing taxes, on the one hand, and deciding how the tax proceeds shall be spent, on the other. This process raises political questions on two levels: principle and consequences. (p. 52)

The argument, then, is that since management is in effect imposing taxes on the stockholders if it acts to promote or protect the interests of the other stakeholders, and since it is wrong – both in principle and because of the consequences – for management to do so, it follows that management should not act to protect and promote the interests of the other stakeholders. So Friedman here argues for his stockholder theory by arguing against the stakeholder theory. There are really two different arguments here, so let us consider them separately. The first argument goes: P1 If management seeks to promote or protect the interests of nonstockholding stakeholders at the expense of the interests of the stockholders then it is in effect “taxing” the stockholders. But it is wrong in principle for management to “tax” on the stockholders. Therefore, management should not seek to promote or protect the interests of non-stockholding stakeholders at the expense of the interests of the stockholders.

P2 C

Straightaway we can see that the argument is valid; the issue is whether it is sound. The taxation analogy expressed in P1 is plausible enough. As for P2, Friedman gives two reasons for thinking that it is in principle wrong for management to “tax” the stockholders by practicing the stakeholder

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theory. The first is that doing so violates the separation-of-powers principle on which our government is founded: “the businessman . . . is to be simultaneously legislator, executive and jurist. He is to decide whom to tax by how much and for what purpose, and he is to spend the proceeds” (p. 52). The second is that in so acting management violates the principle of “ ‘[no] taxation without representation’ [which] was one of the battle cries of the American revolution” (p. 52). Neither reason adequately supports P2. As for management’s violating the doctrine of the separation of powers principle, surely there is in principle nothing objectionable in not separating the legislative and executive functions – unless we think there is in principle something wrong with parliamentary systems such as Britain’s and Canada’s. Friedman’s objection must be to the usurpation of “the judicial function of mediating disputes and interpreting the law” (p. 52), but even here we might bear in mind that England’s highest court comprises certain members of the House of Lords. Moreover, the board of directors can mediate disputes between competing stakeholders or institute procedures to guarantee due process, so there is a check on management’s power. As for the claim that management’s “taxing” the stockholders violates the principle of “no taxation without representation,” Friedman seems to have forgotten that the stockholders elect the board of directors, to whom the executives running the company are immediately answerable, so they are represented (even if they are “taxed”). Though the stockholders do not directly elect management, we should remember that American voters do not directly elect the president, and senators were not directly elected until the passage of the 17th Amendment. Since stockholders do choose management, albeit indirectly, it is simply false that they suffer under the tyranny of taxation without representation. Moreover, Friedman himself acknowledges that the tax collector-allocator-adjudicator may be “appointed directly or indirectly by stockholders” (p. 52), so it is puzzling that he makes the no-representation claim. Since neither of his reasons adequately supports P2, Friedman has given us no reason to think his argument is sound; indeed, it seems plainly unsound. Let us then turn to the other version of the Taxation Analogy Argument, which asserts that management should not promote the interests of the other stakeholders because of the baleful consequences of doing so. This version of the argument differs from the in principle version only by its different second premise. P1 If management seeks to promote or protect the interests of nonstockholding stakeholders at the expense of the interests of the stockholders then it is in effect “taxing” the stockholders.

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But it is wrong because of the consequences for management to “tax” the stockholders. Therefore, management should not seek to promote or protect the interests of non-stockholding stakeholders at the expense of the interests of the stockholders.

Again, the argument is valid; the question is whether it is sound, so let us see whether Friedman has given us good reason to think it so. Friedman argues that while “the corporate executive . . . is presumably an expert in running his company . . . nothing about his [position] makes him an expert on inflation” (p. 53) or on any other morally worthy objective. If she tries to hold down prices (to benefit her customers), she may simply divert their spending power elsewhere, thereby failing to solve the problem, or she may make the problem even worse: her actions “simply contribute to shortages” (p. 53). The Argument from Expertise that Friedman gives for P2* can be reconstructed thus: (1) (2) (3) (4) Management can effectively promote the interests of the nonstockholding stakeholders only if it has expertise in this area. Management lacks expertise in this area. Therefore, management cannot effectively promote the interests of the non-stockholding stakeholders. If management cannot effectively promote the interests of the non-stockholding stakeholders, it is likely that its efforts will actually demote their interests – the consequences of its attempting to promote their interests will be baleful. Therefore, management’s attempt to promote the interests of the non-stockholding stakeholders will have baleful consequences.

(5)

Though Friedman does not state the argument in such detail, I trust that the reader will agree that this is a fair reconstruction of Friedman’s thinking. The Argument from Expertise is certainly valid, but even a cursory examination of its premises, especially (1), reveals that it is unsound. It might be thought that (1) would be more plausible if management’s expertise were made a sufficient, rather than a necessary condition, for its effectively promoting the interests of the other stakeholders – that is, if ‘if’ were substituted for ‘only if’. This would render the argument invalid, of course, but there are other reasons for preferring the only if- to the ifformulation of (1), not least of which is the implausibility of supposing that expertise in an area is sufficient for practical effectiveness; that experts might be practically ineffective is proverbial. Is (1) true or plausible in the only if-formulation? I think not. First off, while technical expertise may be required to promote certain goods – Friedman’s inflation example

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is one – is it really plausible that CEOs of major corporations lack the requisite economic knowledge? It’s doubtful that one must possess a Ph.D. in economics, as does former Enron CEO Ken Lay, to have the requisite knowledge. Moreover, it is implausible that such technical expertise is required for persons, be they corporate or natural, to adhere to or even rise above the minimal level of moral decency we expect from each other. What sort of expertise is required for an executive to know that relocating a profitable plant on which a community depends will hurt the community, or that reducing the output of toxic chemicals will benefit the community? On the other hand, suppose that such expertise is required. Why should we suppose that the CEO herself must possess it? One need not be an expert in baggage-handling systems or know how to fly, for example, to effectively run an airline; instead, one finds someone who is such an expert, and relies on her for guidance. Similarly, one need not be an expert in employee relations to effectively promote the well-being of one’s employees: one can hire someone who is. So even if we grant the truth of (2), the claim embedded in (1), that such expertise is necessary, seems plainly false. Thus Friedman’s argument in support of P2* is unsound, which gives us no reason to think that the Taxation Analogy Argument is sound. The Personal Responsibility Argument Friedman’s next argument turns on the claim that “the great virtue of private competitive enterprise [is that] it forces people to be responsible for their own actions” (p. 53). Without straining the limits of charity, we can, I think, attribute the following argument to Friedman: P1 P2 C If stockholder theory promotes individual responsibility then ceteris paribus we should endorse it. Stockholder theory promotes individual responsibility. Therefore, ceteris paribus we should endorse stockholder theory.

The argument is again valid but again unsound. P1 makes sense given Friedman’s view that the economic freedom guaranteed by the stockholder theory is necessary for political freedom, and the plausible connection between individual responsibility and political freedom. Friedman asserts P2 when he says that the stockholder theory “forces people to be responsible for their own actions and makes it difficult for them to ‘exploit’ other people for either selfish or unselfish purposes” (p. 53). It is hard to imagine that Friedman reflected very long on P2, for not only is it false, it is obviously false, since the stockholder theory encourages the exploitation of

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employees, suppliers, customers, etc., for the benefit of the stockholders. It may be best for them not to feel exploited, but there can be no doubt that they are treated as mere means: their interests require no direct consideration; they are merely to be manipulated for the benefit of the stockholders. If an executive can legally externalize her costs – say, pass on the costs of cleaning up the pollution that is a by-product of making her product – then Friedman’s theory clearly requires her to do so. It would not be in the interest of the stockholders for her to seek to internalize such costs, since doing so would reduce corporate profit and put the company at a disadvantage if its competitors continued to externalize. And if all agreed to internalize their costs, the CEO now has an incentive to free-ride, since doing so would maximize profit. It is simply implausible to suppose that stockholder theory encourages the sort of personal responsibility Friedman claims for it. The Free Society Argument The last of Friedman’s arguments is his argument that “the cloak of corporate social responsibility . . . does clearly harm the foundations of a free society” (p. 55). Here he defends stockholder theory by pointing to the baleful consequences of the stakeholder theory (which he calls “the doctrine of social responsibility” (p. 53)). I reconstruct the argument thus: P1 P2 C1 P3 C2 Whatever reduces economic freedom harms the foundations of a free society. The practice of stakeholder theory reduces economic freedom. Therefore, stakeholder theory harms the foundations of a free society. We should reject whatever harms the foundations of a free society. Therefore, we should reject stakeholder theory.

As usual, the argument is valid but unsound. I think we can safely grant P3, and P2 is not implausible, even though Friedman regularly overstates his point – for example, he says that stakeholder theory is essentially a “socialist view” (p. 53) and that those who advocate it are “preaching pure and unadulterated socialism” (p. 51). But the stakeholder theory does not advocate public ownership of the means of production; it merely requires that corporate persons do what we think all decent natural persons ought to do, which is to consider how their actions affect the well-being of those around them. Thus it is hard to see how stakeholder theory is socialistic. Perhaps Friedman is helped along to this mistaken view by the assumption that any non-market constraints

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on corporate behavior will not be “the social consciences, however highly developed, of the pontificating executives . . . [but] the iron fist of Government bureaucrats” (p. 55). Friedman never explains why the constraining forces must be “external forces” (p. 55). We regularly expect natural persons to constrain their conduct within bounds set internally; why should we assume artificial persons such as corporations are incapable of the same sort of self-regulation? This point aside, it is true that following stakeholder theory rules out certain forms of economic behavior and limits the acceptable options. Let us, at any rate, grant that P2 is plausible. That leaves P1, which rests on a claim for which Friedman argues at length in Capitalism and Freedom, that “capitalism is a necessary condition for political freedom” (1962, p. 10). Querying this provocative thesis would take us well outside the ambit of this little essay, so I shall not consider it in depth. Still, I think we can see that P1 is false. One reason for thinking P1 false is that any tenable account of morality will rule out certain forms of economic behavior. Even egoism rules out the form of economic freedom known as prodigality, since egoism holds that I ought not spend well beyond my means, because prodigality is imprudent: I am economically, but not morally, free to waste my money. Utilitarianism tells me that I ought not to hoard money or spend it on a new DVD player if doing so does not maximize (total or average) well-being. Kant thinks that both the avaricious and prodigal persons fail in their duties to others and self, respectively, and Aristotle thinks prodigality, while not as vicious as avarice, is still a vice. It is hard to see how restricting a company’s freedom to externalize its costs (by imposing a duty not to pollute, as Australia does) harms the foundations of a free society. Moreover, far from harming the foundations of a free society, moral constraints on voluntary economic arrangements can be seen to promote these foundations. A good case can be made that the doctrine of employment-at-will militates against self-respect by systematically treating persons as mere means: in denying that good reasons or even any reasons need to be given to terminate employment, rational agents are treated as though they are not the sort of beings that need or respond to reasons. If this is true, and if self-respect is necessary for the full exercise of political liberty, then the economic freedom embodied in employment-at-will will harm the foundations of a free society by assuring that citizen-employees will lack the full self-respect necessary for the exercise of political liberty. Obviously, I can do no more than merely to gesture at this argument here, and I recognize that reasonable people can disagree about this. Nonetheless, I do think it is clear that P1 is false, since any

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tenable moral theory will limit economic freedom, though it is obviously false that any tenable moral theory will harm the foundations of a free society. Thus another of Friedman’s arguments is, while valid, unsound.

CONCLUSION Perhaps Friedman is correct that “discussions of the ‘social responsibilities of business’ are notable for their analytical looseness and lack of rigor” (p. 51). The problem is that his discussion of the issue is no different: not only is it unclear just what his view is, none of the arguments he offers in support of that view are persuasive. We considered six arguments and found none sound: one is invalid by equivocation, another commits an ignoratio elenchi, and the rest are not merely unsound but rather obviously unsound. Now Friedman’s theory of corporate moral responsibility may well be correct, though his arguments do not show that it is, and insofar as his job was to rationally persuade us of his view, he has failed. In light of Friedman’s failure to provide rationally persuasive arguments for his view, we might consider how Friedman’s view coheres with other moral convictions. Imagine a person who considers only her own interests when deliberating about what to do. This person recognizes that her actions affect others – indeed, may often harm or injure others – but she considers the effects of her actions on others only when they can affect her interests. I think most of us would think that such a person falls well below the minimal level of moral decency we expect from each other. Why then would we think it is permissible for a corporation to ignore the effects of its actions on others, or to consider those effects only from its own point of view? Presumably the fact that the corporation is an artificial person and not a natural person cannot exempt it from the demands of morality.

REFERENCES
Beauchamp, T. L. and N. E. Bowie (eds.): 2001, Ethical Theory and Business (6th edn.), Prentice Hall, Upper Saddle River, NJ. Boatright, J.: 1994, ‘Fiduciary Duties and the Shareholder-Management Relation: Or, What’s So Special About Stockholders?’, Business Ethics Quarterly 4, 393–407. Carson, T.: 1993, ‘Friedman’s Theory of Corporate Social Responsibility’, Business and Professional Ethics Journal 12, 3–32. Friedman, M.: 1962, Capitalism and Freedom, University of Chicago Press.

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Friedman, M.: 1970, ‘The Social Responsibility of Business is to Increase its Profits’, New York Times Magazine, 13 September. Reprinted in Beauchamp and Bowie 2001; page references are to the reprint. Goodpaster, K.: 1991, ‘Business Ethics and Stakeholder Analysis’, Business Ethics Quarterly 1, 53–73. Reprinted in Beauchamp and Bowie 2001; page references are to the reprint. McGeehan, P.: 2001, ‘Credit Suisse Trims Compensation of More Top Bankers’, New York Times, 13 November. Reich, R.: 1999, ‘A Shareholder, and a Citizen’, New York Times, 5 November. Central Michigan University Mt. Pleasant MI 48859 E-mail: sean.mcaleer@cmich.edu

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