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How Friedman’s View on Individual Freedom Relates to Stakeholder Theory and Social Contract Theory

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Abstract

Friedman’s view on corporate social responsibility (CSR) is often accused of being incoherent and of setting rather low ethical standards for managers. This paper outlines Friedman’s ethical expectations for corporate executives against the backdrop of the strong emphasis he puts on individual freedom. Doing so reveals that the ethical standards he imposes on managers can be strictly deduced from individual freedom and that these standards involve both deontological norms and the fulfillment of particular stakeholder expectations. These insights illustrate the necessity to reconsider how Friedman’s approach relates to other important normative theories of business ethics. Contrasting Friedman’s approach with stakeholder theory and integrative social contract theory—when considering the importance he assigns to individual freedom—shows how and why these approaches differ. Still, the comparison also highlights striking similarities. This paper contributes to a better understanding of Friedman’s position—which is still one of the most influential approaches in business ethics research—because it enables a differentiated look at its strengths and weaknesses.

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Notes

  1. When Friedman describes the circumstances in which the government should be allowed to restrict freedom out of paternalistic reasons, he states: “We do not believe in freedom for madmen” (1962, p. 33). This quote illustrates his doubts regarding the decision-making ability of such people.

  2. By regarding environmental pollution in terms of property rights, Friedman’s approach is more sensitive to this issue than other business ethics theories. Stakeholder theorists (e.g., Phillips et al., 2003) explicitly decline to apply stakeholder theory to non-humans such as the natural environment.

  3. One might consider that napalm production can even be regarded as violating the deontological norm “Do not hurt others,” as this is what napalm is intended to do. However, one cannot conclude from Friedman’s work that he would condemn napalm per se.

  4. We are aware that reasons other than being deceived by a company might cause stakeholders to voluntarily enter transactions that are not beneficial to them, e.g., bounded rationality (Simon, 1955). However, such reasons are outside the control of the corporate executive and are thus not a part of his or her ethical obligation as a manager.

  5. Companies likewise affect legislation in democratic countries, e.g., through lobbying activities. However, their influence can considered to be lower compared to in non-democratic countries.

Abbreviations

CSR:

Corporate social responsibility

ISCT:

Integrative social contracts theory

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Acknowledgements

We are grateful to Melanie Eichhorn for her helpful and constructive feedback on the various earlier versions of the manuscript. Furthermore, we would like to thank the editor, Alejo José G. Sison, and the four anonymous reviewers for their insightful comments throughout the review process.

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  1. ESCP Europe Business School, Berlin, Germany

    Johannes Jahn & Rolf Brühl

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Correspondence to Johannes Jahn.

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Jahn, J., Brühl, R. How Friedman’s View on Individual Freedom Relates to Stakeholder Theory and Social Contract Theory. J Bus Ethics 153, 41–52 (2018). https://doi.org/10.1007/s10551-016-3353-x

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