izing the value of a firm for shareholders can lead to unethical or illegal actions, such as compromising safety standards or harming the environment. Milton Friedman's view that the sole responsibility of businesses is to increase profits has been challenged by stakeholder theory. Historical incidents like the BP oil spill and Bhopal gas tragedy exemplify the risks of neglecting ethical considerations in the pursuit of profit.
Maximization of Shareholders' Value and Ethical Considerations
Maximizing the value of a firm for its owners can lead to unethical or illegal behavior, particularly in areas of customer and employee safety, environmental protection, taxes, and more. The motive to increase shareholders' wealth might prompt managers to cut corners or ignore potential risks, resulting in actions that can undermine the broader societal welfare. For example, a company may neglect workplace safety standards to reduce costs, potentially compromising employees' health in violation of Occupational Safety and Health Administration (OSHA) regulations. Companies might also engage in irresponsible environmental practices, like illegal dumping of waste, to minimize expenses and boost profits.
Milton Friedman famously argued that the social responsibility of businesses is to increase their profits, with governments being responsible for regulating these businesses to prevent societal harm. However, this view has been contested by stakeholder theory, which suggests that a firm's responsibilities extend beyond just shareholders to include other stakeholders such as employees, customers, and the community.
Unchecked pursuit of profit maximization has led to numerous historical examples of ethical lapses. The 2010 BP Deepwater Horizon oil spill and the 1984 Bhopal gas tragedy are both instances where the desire to maximize profits arguably overshadowed environmental and safety considerations. Such incidents underscore the potential consequences of an exclusive focus on maximizing business's profits without sufficient ethical oversight.