Sebastian

Moerler
Business in Society

Submission Date: 31.01.2016

Master of Finance

Assignment 1
Which arguments did you find most convincing? Explain 2 of the arguments.
I was very much convinced by Milton Friedmans argumentation about the social responsibility of
companies as well as their collective perception in the public and its importance in todays business
environment. He imposed a new way of thinking about corporate social responsibility (CSR), which I have
thought of before. In the following essay, I would like to explain the two major arguments that convinced
me the most.
In case managers fulfill a social responsibility and decide against increasing shareholder value in order to
protect other stakeholders of the company without creating a positive long-term effect on profits, they
are in fact imposing taxes on the firms shareholders and deciding how to spend the proceeds without
having any legitimation to do so. Every individual in a free market economy should be able to choose how,
where and when to spend his or her proceeds with the only constraint given by elected governmental
representatives. There should not be any taxation without representation, which would be the case if
managers decide to spend profits on charities, higher wages or to equalize lower prices. After all, the
reduction of profits leads to lower shareholder values due to lower dividends or/and share prices. Besides,
such actions only show that society as a whole has failed to create a shared believe in social responsibility
and that a few individuals are now seeking to attain the latter by undemocratic procedures.
However, it may the case that certain reductions of profits lead to higher returns and increased
shareholder values in the future. To illustrate, charitable contributions can reduce corporate taxes,
improve the cooperations image and ultimately increase sales. Investing in the communitys
infrastructure, government or educational system can benefit companies as well and lead to a reduction
in wages, transportation costs or have other valuable effects. Nevertheless, in each of these transactions,
the ultimate goal is the improvement of the firms cash flow ability in order to increase profits in the long
run. Such actions are purely justified in its own self-interest and not solely in the societys well-being.
Accordingly, classifying such as corporate social responsibilities is misguided and a very hypocritical way
of window-dressing aimed at regaining the publics goodwill, which currently sees corporations as
capitalistic and soulless parts of society. Consequently, such actions should be taken since both the firm
as well as the society profit but should not be classified as socially responsible investments.
As a result, the use of profits to finance so-called social responsibilities should either be classified as
taxation or window-dressing. Either way, it harms the foundation of free markets and I agree that a
company should use its resources and aim its activities solely at increasing profits while sticking to the law
as well as the ethical customs embodied in our society.