5Accn003W | Accounting | The Assessment Answer

Answer:

Introduction

As per Friedman “The main aim of any business is to increase its profit”, it highlights the fact that businesses operate and perform their work to make profit. It uses it resources and engages in such activities that they can make profit out of the same (Friedman, 1970). Every business is competing in the market in order of terms of revenue and making profit, that is the basic parameter based on which the businesses are judged. People also wants to invest in such companies in which the overall profit is more so that they get good returns. So, it won’t be wrong to say that profit making is the aim of the business and till the time they follow this, they remain in the game provided they are not indulging in any kind of fraud (Kang, et al., 2016). But it can also be stated that there are many other factors that governs the success of any business and that is very different from this basic idea of making profits. It can also be seen that sometimes companies get so competitive that they end up opting for wrong fraud methods to show high profits and revenues as they know that their success would be judged on this basis (Kaufmann, 2017). So, we see that many times companies have indulge in frauds and to reduce that there have been many corporate reforms and reforms in the form of better corporate policies and conceptual framework that would help in reducing the errors in the financial statements and provide clear picture to the users so that they are aware where they should invest

their money. The policies with respect to good corporate governance have also been defined with the aim of reducing the curb of profit maximization and providing better results to the shareholders of the company. There are many areas in which these policies have been successful in making sure that there is better implementation of resources and profit and revenue should not be the only parameter that should judge the success of any company (Johan, 2018). Many arguments in for and against this statement has been stated that highlights what is the main crux behind this idea of profit maximization and aiming for increased revenue so that in future the company is benefited (Pamela & Tamara, 2013). A brief analysis with respect to this has been stated in the analysis below-

Analysis

Friedman has taken the shareholder approach to social responsibility, which states that the main aim of any business is to serve the shareholders, and these are the only group that business needs to be responsible to. It does not matter whether they are working in a socially compatible manner or not, the main should be to increase the profits (Coate & Mitschow, 2017). This is done so that the shareholder gets the best return, as they are the people who are investing in the company and thus the concept of shareholder wealth maximization is one of the biggest driving force for the success of any company. So, this can be stated as the base for Friedman’s argument that businesses are driven with the aim to improve their profits. He has also stated that the shareholder can decide for themselves what social responsibilities that they need to take. For this purpose, the corporate executives have been appointed for the business and they can take the necessary decisions which they feel is good for the business (Abdullah & Said, 2017). He states that a business has no social responsibility, and the corporates are having social responsibility in their own capacity. The only responsibility that the business has is to use it resources and make money out of that and support the investors, the shareholders are providing great return to them. There is no other social responsibility that they have but the other shareholders can have their own stand as a business or a company has its own individual identity and it is considered as an artificial person, so they can work accordingly. The idea of stakeholder theory is not consistent with the corporate social responsibility theory as we see that there are many aspects when the business does something for the society but that might not go good with the shareholders (Boghossian, 2017). For example, that we see that there might be some natural disaster the business is giving free products to the people but that will not go great with the shareholders as the company is giving it for free and there will be no profit, so we see that shareholders will be affected by that. Earning profit thus becomes mandate as there are many aspects and most important is taking care of the shareholders, because if the shareholders are not getting enough returns the company will not getting investment from that and the shareholders will switch to some other company in which the profit is very high. So, profit is parameter based on which the investors decide which company they want to invest, as profits will be help them get good return. So, if the profit is not high they will not invest, so overall, we see that company is under a pressure to make profit (Cayon, et al., 2017). So, it can be said that rightly that the main aim of the company is to make profit, and that has been supported through the theories of stakeholder theories and stewardship and ascertaining that the profit would be more, so that the investment is more (Charles H, et al., 2015).

In real life scenarios if we take the example of companies like Alibaba and Amazon, that are very famous for their CSR activities along with providing better returns to the shareholders, but what we see is that while these companies were in the growing stage their main aim was to earn maximum profits and not be sustainably responsible to the environment in which they are functioning. We also see that there are many companies like BHP and Qantas have started looking for ways by which they can be sustainable in their approach and have also stated the same in their annual reports that there core aim is to make sustainability the core of their business strategies and their overall decision making. They aim to put health and safety first, so we see that there are companies that understands that there is a bigger goal then just earning profits.

But there are many arguments that have been stated against this idea of profit maximization, like social activist Naomi Klein's book The Shock Doctrine, in which it states that this action by the companies or increase the wealth of the shareholders leave negative impact on the society and they must suffer because of that (Klein, 2007). There are also chances that they do not get the desired returns that they want and the actions of the company such as indulging in frauds so that their overall profit is high is very negative and can affect the society very badly (Cundill, et al., 2017). Another argument that can be stated in this behalf is that many companies indulge in such activities that have negative impact on the environment and thus it is important that they take necessary steps that can help them reduce this but that often can lead them reduction in the overall profit that they make, so for the investors it is a negative thing but when it comes to long term success being responsible towards the society is important and especially to the environment to which the company operates as the business is getting its raw material from such sources only, hence the aim is to make as much profit as possible but providing to the society also. The investors have also started looking at other aspects to decide which business they want to invest in and profit is not only the one criteria that they look for. The business should aim for long term success that is supported through actions which are feasible for all the stakeholders that includes the investors, the government, the customer, the society etc. all that is dependent on the company in some way or the other. In case the business fails, the company shall not be able to support their needs and thus there should not be too much focus on earning profit and corporate social responsibility should be recognized and practiced (Sinclair, et al., 2007).

Many researches have stated this fact that there has been this discussion that has been going on from ages on what drives the business and what is the end aim of any business, and most of the arguments have been in favor of the concept of profit maximization and shareholder wealth maximization, but now what we see is that this approach as changed and authorities have understood how important it is to protect the environment and the companies are thus aiming for sustainable development that would help in global development and success both for the present and the future. Investors and shareholders are the backbone of any company, but the fuel to drive the same should not be to increase the profit only, but the overall responsibility towards the society should also be addressed.

Conclusion and Recommendations

Based on the overall analysis it can be said that this statement that has been stated by Friedman can be said in practical aspect this is very much applicable, and, the companies aim for increasing the profits and getting the best results and there only aim is to improve the shareholder interest and provide them with necessary returns. But over the years there have been any reform and the companies have now started taking steps that would make them responsible towards their society in which they are functioning. Societal responsibility is one thing that companies need to take care of and support the people after from the stakeholder and thus we see that there has been so much increase in the corporate social responsibility activities over the years and companies have started following these activities and the investors themselves have started in their individual capacity giving importance to the same. Thus, we see that the overall improvement is very high and companies all around the glove should take note of that and accordingly there have many rules and regulations that have been framed to support this. It is mandatory as per the Corporations Act that companies need to invest some part of their profit for the good of the society and fulfil the obligation of CSR policies. In case they fail actions would be taken against them, so not just the companies the authorities have also understood this that profit should not be the only parameter based on which the success of any company is judged. There are many other aspects based on which the success of the company depends and often the profit maximization factor is not the most important one. If the company does not act in a socially responsible way, there are chances that they will lose their customers and in the long run they won’t be able to make the profit that they want to make. So, the aim should be work in a socially responsible manner and support the society and in that provide good return to the investors. This will also help in reducing the high frauds that companies are indulging in keeping in mind the strict competition that is there to attract more investors. So, we see that it also helps in making sure that a true and fair view is presented to the users and based on that they can decide accordingly.

References

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Boghossian, P., 2017. The Socratic method, defeasibility, and doxastic responsibility. Educational Philosophy and Theory, 50(3), pp. 244-253.

Cayon, E., Thorp, S. & Wu, E., 2017. Immunity and infection: Emerging and developed market sovereign spreads over the Global Financial Crisis. Emerging Markets Review.

Charles H, C., Giovanna, M., Dennis M, P. & Robin W, R., 2015. CSR disclosure: the more things change…?. Accounting, Auditing & Accountability Journal, 28(1), pp. 14-35.

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Cundill, G., Smart, P. & Wilson, H., 2017. Non?financial Shareholder Activism: A Process Model for Influencing Corporate Environmental and Social Performance. International Journal of Management Reviews, 20(2), pp. 606-626.

Friedman, M., 1970. The Social Responsibility of Business Is to Increase Its Profits. Corporate Ethics and Corporate Governance , pp. 173-178.

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