Stakeholder vs Shareholder Theory and Milton Friedman

If you own a business alone (e.g., convenience store, coffee shop), you are the sole shareholder.
Stakeholders are anyone with an interest in a business. For example, at The Old Spaghetti Factory, stakeholders include:
- Employees: They have an interest in the business's success and continued operation.
- Customers: Their satisfaction is vital for the business.
- CEO and Board of Directors.
Shareholders are stakeholders, but not all stakeholders are shareholders. You can have an interest in a company without owning it. However, if you own part of a company, you definitely have an interest in its success.

Corporate governance aims to balance the interests of stakeholders.
Stakeholder theory operates within capitalism.
It seeks a more ethical and comprehensive approach that balances profit-making with other considerations, like:
- Good working conditions for employees.
- Positive impact on local communities.
- Good relationship with local governments.
Stakeholder theory doesn't reject profit-making but considers it one of many goals to balance.

Milton Friedman (1912-2006) was a prominent American economist and an advocate for free markets.
He was associated with the Chicago School of Economics.
He advocated for minimal government intervention (regulation) in the economy, believing it helps distribute goods most efficiently.
Free market means minimizing government intervention.
- Example of government intervention: Minimum wage.
- Friedman might not have opposed the minimum wage.
Friedman consistently applied his libertarian views across the board.
Some libertarians are inconsistent, advocating for freedom from government constraints only when it suits their lifestyle.
Friedman referred to government intervention as "government interference."

Friedman argued against the idea of businesses having a "social responsibility" beyond profit-making.
He defined social responsibility as businesses being concerned with things like:
- The environment.
- Well-being of workers.
- Social goals, etc.
He believed businesses should not be primarily preoccupied with these things.
Friedman criticized the idea that businesses should promote desirable social ends, such as:
- Providing employment.
- Eliminating discrimination.
- Avoiding pollution.
He viewed corporate social responsibility as a form of socialism.
He believed that by promoting corporate social responsibility, businesses were contradicting themselves.
He called businessmen who talked about social responsibility "unwitting puppets of the intellectual forces that have been undermining the basis of a free society."

Traditionally, moral responsibilities are discussed from an individual standpoint.
Peter French argued that corporations should be considered moral agents, like legal persons.
- Corporations taxes are the business itself owing taxes.
This would mean corporations have moral obligations and can be held responsible for their actions, not just the individuals within them.
Friedman disagreed with the view that corporations are moral agents with responsibilities towards society.
He believed only individual biological persons have moral responsibilities.
A corporation is an artificial entity without personal identity or feelings.

Friedman believed corporate executives have a responsibility to the owners of the business, the shareholders.
The executives' primary responsibility is to fulfill their duty towards the owners, which is profit-making.
Individuals employed in the business have responsibilities, and these are towards their employers, focusing on profit-making.