In the attached document is the text of Milton Friedman’s New York Times Magazine article “The Social Responsibility of Business is to Increase its Profit” from 9/13/1970. He summarizes his argument on why maximizing shareholder wealth is the goal of a firm with the following:
Friedman’s general goal of the firm, maximizing “shareholder wealth”, has seen some changes over the past 50 years. Jack Welch, long-time CEO of General Electric was famous for his shareholder value theories. More recently, leaders of some of the largest global corporations are expanding upon the shareholder values as well. In general, the consensus is that shareholders do well when all stakeholders do well, or as Jack Welch famously said: “Shareholder value is the result of you doing a great job, watching your share price go up, your shareholders win, and dividends increasing. What happens when you have increasing shareholder value? You’re delivering better employees to their communities and they can give back. Communities are winning because employees are involved in mentoring and all these other things. Customers are winning because you are providing them with new products.”
Questions (minimum of 250 words per question)
1) What is the implication of Friedman’s viewpoint vs. the more modern thinking as expressed by CEOs such as Jack Welch?
2) Find an article with in the last 3 years that either supports the idea of shareholder value or is against the concept. Discuss the importance and relevance of the article and how you personally feel about shareholder wealth/value.
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