What is the most ethical way of running a business? According to Milton Friedman, the ethical role of an executive is to make decisions based on maximizing profit for business owners and shareholders. Conversely, R. Edward Freeman believes that in order for a business to operate at its full potential, and maximize profits for business owners and shareholders, the executive needs to make decisions that please all stakeholders.
These methodologies are both aimed at growing business and maximizing profits. One method focuses on rewarding financiers, while the other claims it is both possible and beneficial to financiers to reward everyone. Is it possible to please everyone without decreasing capital? This early in my business education I was unsure, so I decided to try and find an example.
Dr. John Izzo’s article “A lesson in leading” focuses on former CEO, now executive chairman, Darren Entwistle of TELUS. When Entwistle took over the company in 2000, he decided that the company’s culture would lead to its success. To create the desired culture, he decided to engage employees by determining their values, encouraging them to buy shares in the company, and making their development a priority. Was this an ethical use of time and resources? Would Entwistle’s time have been better spent focusing on the financiers? The answer is, no! By focusing on his employees, Entwistle was able to create a brand that customers, suppliers, and communities were pleased with. The result was a shareholder value creation of 304%, a statistic that certainly pleased business owners and shareholders alike.
What did I take from this? One primary ethical concern for executives is to make sure they are maximizing profit for business owners and shareholders. Although, in some cases decisions can be made that not only benefit financiers, but all other stakeholders as well. It follows that the most ethical way of running a business is to make decisions that benefit all stakeholders. However, decisions made in the interest of other stakeholders must not come at the expense of business owners and shareholders.
Works Cited
Freeman, R. Edward . “Stakeholder Theory.” YouTube. Business Roundtable Institute for Corporate Ethics, 13 May 2009. Web. 10 Sept. 2014. <https://www.youtube.com/watch?v=Ih5IBe1cnQw>.
Izzo, John. “A lesson in leading.” Financial Post Business. National Post, 6 Sept. 2014. Web. 10 Sept. 2014. <http://business.financialpost.com/2014/09/06/a-lesson-in-leading/?__lsa=678c-4cdf>.
Zimmerli, Walther Ch., Klaus Richter, Markus Holzinger, and Milton Friedman. “The Social Responsibility of Business Is to Increase Its Profits.” Corporate ethics and corporate governance. Berlin: Springer, 2007. 173 – 178. Print.