Consequences of Friedman’s Shareholder Theory for Hrm Ethics

Milton Friedman wrote in 1973 that managements primary responsibility is to the shargonholders who give and consecrate in the comp each. What argon the impressions of this philosophy for HRM good philosophy, and what choice perspectives might make the occupation in the future? Friedmans Shareholder Theory Milton Friedmans shareholder possibleness has had a broad range of consequences for HRM morals.The main consequence being that if management are only answerable to owners and shareholders, and must do as they wish, managements quest will almost incessantly be to exploit profit. Organisations that are constantly trying to exploit pay are often con harshed by soon- circumstanceism. Short- landmarkism refers to the excessive focus of reasonable about memorial tabletal leaders on ill-considered-term earnings which can impede the huge-term value creation of a company. Short-termism can have profound effectuate on an ecesiss HRM ethical motive.Before examining the consequences of Friedmans scheme that managements primary responsibility is to the shareholders that own and perpetrate in the company, and before outlining alternative good perspectives that might coiffure the profession in the future, I think it is important to give a brief account of the different agendas of HRM ethics and of Friedmans reasoning asshole his surmise in order to relate it to HRM ethics. Fryer (2009) says that there are two contrasting agendas with regards to the relationship between HRM and ethics.He says the first agenda is public assistance humanism and the second agenda is managerial performativity. The welfare humanist respectable agenda says that the ethicality of HRM practice should be measured in relation to its reactivity to the wishs and aspirations of employees. Under this perspective, self-actualisation and self-esteem of employees is considered very important and is rigorously promoted. The managerial performativity agenda is the opposite of the welfare humanist agenda. This agenda places the achievement of strategical success above each former(a) considerations, including employee well-being.Supporters of this agenda argue that if an government activity foc handlings purely on maximising profit inside impoverished/ complimentary market conditions, it will ultimately be in every peerlesss beat out interests. According to Fryer (2009), Friedman was a utilitarian and also followed the managerial performativity agenda. utilitarian possible action proposes that the best charge to lend moral legitimacy to a decision is to promote the elbow room forward that will generate the sterling(prenominal) amount of good for the greatest repress of people (Fryer 2009, p. 77).Oslington (2012) suggested that the work of rapture Smith can be lend oneselfd to support the idea that if an brass section prospers, inn in general will benefit from this. Therefore, as Friedman believed, if a firm tries to maximise profits, it will u ltimately be in a societys best interests as many people expect to benefit from the commercial prosperity of a furrow, including its shareholders, suppliers, customers, the vast majority of employees and society at large as the trading generates economic activity. Friedman (1970) wrote a creative article in the New York Times called The Social Responsibility of vocation is to amplification its Profits.In this article he argues that any soul who believes that a pedigree should be concerned with issues other than maximising profit, issues such as eliminating discrimination, avoiding defilement and providing employment, are just puppets of the forces that strive to undermine the basis of a free society. This article lays the foundation for Friedman to declare in 1973 that managements only responsibility is to shareholders as he places an increased vehemence on home rights. Fryer (2009) suggests that that property rights are fundamental to Western culture and that the right to own and to polish off property is of the utmost importance.Consequences of Shareholder Theory The consequences of Friedmans shareholder system for HRM ethics are profound. HRM ethics is the moral obligations of an employer towards its employees and shareholder theory forces management to focus on short term profit maximisation which justifies actions such as imposing stressful working conditions on employees as long as it improves the performance of the company. Many organisations that follow this shareholder theory have largely questionable ethics towards their employees as they seek to maximise profits without ensureing the law.A good example of an organisation that follows this theory is Ryanair. Ryanairs (2012) code of ethics clearly states that Ryanair is committed to the delightful and equitable discussion of all employees and abides by employment laws in the countries in which it does business. Ryanair does non break any laws with regard the treatment of their employe es. However, they do marginalise workers as they are not actually employees of Ryanair, that independent contractors. Employment law places strict responsibility on employers for their employees, whereas the conditions for independent contractors are not as strict.This allows Ryanair to maximise profits without having to incur extra costs such as appraise requirements and providing better work conditions. Short-termism can also directly doctor an organisations HRM ethics in other ship canal. Kreymeyer et al. (2006) carried out a survey of to a greater extent than four-spot hundred executives across many of the largest U. S. corporations. Analysis of the survey found that, due to the pressures of short-termism, more than half of all respondents said they would delay or scrape new projects, even if the cancellation of those projects meant that the organisation sacrifices value creation in the future.Such projects whitethorn include implementing a new HRM system. Implementing a new HRM system may be costly to install at first but if successful, could increase future value creation through and through many different counselings such as reducing conflict within an organisation, improving custody morale and productivity, reducing employee turnover which in turn could centralise enlisting and training costs. This can show how Friedmans shareholder theory, which increases the pressures of short-termism, can affect an organisations HRM ethics as profit maximisation in seen as the number one precedency of the firm.As HRM ethics focuses on moral obligations of employers to employees, one priority of a firm should be to try to secure the long term sustainability of an organisation in order to provide job security to employees. Friedmans shareholder theory should back this up but the overriding emphasis on short term goals and profitability can impede long term sustainability. Opportunities that could improve the long term performance of an organisation may be ignored as they might impact on short term profitability.For example, projects may be ignored because of the cost of the initial enthronement is overly high or because the payback period of the project is too long. In Krehmeyer et al. (2006) survey, eighty per cent of respondents said that they would reduce discretionary using up on advertising, research and development, maintenance and hiring in order to meet short term performance targets set out by the organisation. These factors can reduce competitiveness of a firm and can put its long term sustainability in jeopardy.Alternative Ethical Perspectives Some ethical perspectives that might serve the business world in the future are Kants theory of ethics, Rawls theory and also the Aristotelian theory of ethics. These perspectives can be considered as alternatives to Friedmans shareholder theory. Kants Theory of ethical motive The Kantian theory of ethics was created by a German philosopher called Immanuel Kant (1724-1804). His th eory of ethics was based on respecting people and also on the idea that a mortal should neer use another for personal gain.Kant did not believe that a persons actions should be considered right or wrong by examining the consequences of their actions, rather, he believed that it is the motives fanny the decision that lend moral legitimacy to it. Klikauer (2010) says that, for Kant, ethics need to be established through a series of logical arguments and without any inclinations or feelings that may cloud judgement. Kants ethics are channelise by purely ethical laws.Klikauer (2010) also notes that Kantian ethics does not mountain pass business managers any room for manoeuvring with ethical decisions as ones actions, and more importantly ones intentions cannot be ethical and unethical at the same, there is no middle ground. There are important lessons that can be learned from Kantian ethics but it is also somewhat incompatible with business ethics. Kant believed that one should no t use another for personal gain but the essence of management is to use people as a means to an end. The end would be an organisations goals.Therefore people are treated like costs, which is the opposite of Kants Kingdom of Ends which says that humans should be treated as ends. Rawls theory of ethics John Bordley Rawls (1921-2002) was an American philosopher that based his theory on the concepts of equality and virtue from behind what he calls a veil of ignorance. Rawls (1972) says that in order to date fairness with regards ethical standards, we must imaginatively project ourselves into an master copy position. This original position is one that is ignorant of our status in society.He believed that the only fair way to reach a decision was if a person was behind a veil of ignorance, this means a person must come back back to a position where he or she does not spot his or her class, race, sex and also what side of the social contract that that person will be on. According to C hryssides and Kaler(1993) once the decision maker has imaginatively reverted back to the original position, the social and economic inequalities of the decision are to be arranged so that the greatest benefit goes to the least advantaged.Rawls theory is more sympathetic to a welfare humanist agenda as he believes that a business has a duty to less advantaged stakeholders, not just to employees. Stakeholders are those individuals or groups who depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends (Johnson, et al. 2008,pg 132). Rawls theory could be extremely valuable in the future as an increasing number of organisations are encompass corporate social responsibility (CSR).It has been suggested that more organisations are moving from capitalistic CSR stance, which is compatible with Friedmans shareholder theory, to a CSR stance of enlightened self-concern which is now being seen as a more sustainable way for business to be carried out (J ohnson, et al. 2008,pg 146). Aristotelian theory of ethics Aristotle (284-322 B. C. ) was a Greek philosopher. Fryer (2009) believed that the Aristotelian theory of ethics relates to virtue ethics as Aristotle believed that discourse can offered as a basis for moral probity.Virtue ethics says that the morality of a persons actions can be judged in relation to their conformity to the standards of conduct that are acceptable within that given community. Aristotle did not believe that there was an absolute right way to make a decision, he believed the human ability to engage in democratic processes was a defining characteristic that separates us from all other creatures on earth, and that democratic processes were the best way of identifying that way (Fryer, 2009).Lessons from Aristotles theory of ethics could be very useful for the business world. Aristotle believed that the only way to lend moral legitimacy to a decision was to involve all those that were going to be affected in the decision fashioning process. An organisation can involve all those that are affected by their actions through the use of employee voice mechanisms, collaborating with suppliers and customers and by involving all stakeholders in the decision making process. ConclusionFriedmans shareholder theory has largely negative consequences for HRM ethics, as shareholder theory forces organisations to operate under the straight jacket of short-termism in the grow to maximise profits for the shareholders who own and invest in the company. Kants, Rawls and Aristotles alternative ethical perspectives might not be perfectly compatible with the business world but each of them, in their own way, can offer valuable insights that could be extremely valuable and might serve the profession in the future. References Chryssides, G. D. and Kaler J. H. 1993), An Introduction to railway line Ethics, 1st ed, pg. 180-185. London, UK Chapman and Hall. Friedman, M. (1970), The Social Responsibility of Business is to increase its Profits, The New York Times Magazine, purchasable from http//www. umich. edu/thecore/doc/Friedman. pdf Accessed twenty-second October 2012 Fryer (2009), HRM An Ethical Perspective, in D. Collings & G. Woods (2009), Human option Management A Critical Approach, (Taylor & Francis e-Library) pp. 75-90 Johnson, G. , Whittington, R. amp Scholes, K. (2008), Exploring Strategy, Text and Cases, eighth ed, London FT Prentice Hall. Klikauer, T. (2010) Critical Management Ethics. 1st ed. Pg 68-87. Hampshire, UK Palgrave Macmillan (James Hardiman Library) Krehmeyer, D. Orsagh, M. Schacht, K. N. (2006) shift the Short-Term Cycle Discussion and Recommendations on How Corporate Leaders, Asset Managers, Investors and Analysts rouse Refocus on Long Term Value, CFA Centre for monetary Market Integrity/Business Roundtable Institute for Corporate Ethics, Available From http//www. darden. virginia. edu/corporate-ethics/pdf/Short-termism_Report. df Accessed 24th October 2012 Osling ton, P. (2012) God and the Market Adam Smiths ultraviolet Hand, Journal of Business Ethics, vol108 (iss4), Pg 429-438. Available from http//www. springerlink. com. libgate. library. nuigalway. ie/content/e2255226763w13qp/fulltext. pdf Accessed twenty-third October 2012 Rawls, J. (1972) A Theory of Justice. Oxford, UK Oxford University Press (James Hardiman Library) Ryanair (2012), Code of Business Conduct and Ethics, online Available from http//www. ryanair. com/doc/investor/2012/code_of_ethics. pdf Accessed 24th October 2012