Milton friedman doctrine
Friedman shareholder theory 1970
Apart from making a profit, all CEOs today face a much wider range of challenges including environmentalism, diversity, global competition and tighter regulation. The impacts of decisions made by firms ripple out across society, and yet the assets of those firms have been built on the back of investments by every section of that society, as well as the advantages of incorporation including limited liability. It is very simple. The stockholders or the customers or the employes could separately spend their own money on the par ticular action if they wished to do so. He may feel impelled by these responsibilities to devote part of his income to causes he regards as worthy, to refuse to work for particular corporations, even to leave his job, for example, to join his country's armed forces. Equally, Boards and their Executive committees must openly acknowledge the fullest extent of their responsibilities, and accountabilities, to the societies they serve. Yet there is plenty of evidence that shows us that when CEOs are paid with stock—either options or grants—it can enable executives to become very wealthy very quickly without bearing much risk at all. This will, in turn, result in reduced overall efficiency, which will harm everyone.
That year, a French financial economist named Jean-Charles Rochet gave the keynote address, in which he skewered the very foundation of pay for performance. MI defines value as the provision of the best possible quality product or service at the best possible cost and demands that environmental and other externalities are openly acknowledged and fully factored in.
The first step toward clarity in examining the doc trine of the social responsibility of business is to ask precisely what it implies for whom. Friedman Doctrine is discussed in the book Capitalism and Freedom.
Milton Friedman justifies this view by considering who it is a company and its executives are beholden to. Marginal productivity theory seems to move in only one direction.
Performance pay, on the model encouraged by the reform, has been tested. This principle is further clarified when he writes: 4 A corporate executive … has direct responsibility to conduct business in accordance with[shareholder] desires …[i.
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