Consequences of Friedmans Shareholder Theory for Hrm...

Milton Friedman wrote in 1973 that managements â€Å"primary responsibility is to the shareholders who own and invest in the company†. What are the consequences of this philosophy for HRM ethics, and what alternative perspectives might serve the profession in the future? Friedman’s Shareholder Theory Milton Friedman’s shareholder theory has had a broad range of consequences for HRM ethics. The main consequence being that if management are only answerable to owners and shareholders, and must do as they wish, management’s quest will almost always be to maximise profit. Organisations that are constantly trying to maximise profits are often constricted by short-termism. Short-termism refers to the excessive focus of some organisational leaders on†¦show more content†¦Many organisations that follow this shareholder theory have largely questionable ethics towards their employees as they seek to maximise profits without breaking the law. A good example of an organisation that follows this theory is Ryanair. Ryanair’s (2012) code of ethics clearly states that â€Å"Ryanair is committed to the fair and equitable treatment of all employees and abides by employment laws in the countries in which it does business.† Ryanair does not break any laws with reg ard the treatment of their employee’s. However, they do marginalise workers as they are not actually employees of Ryanair, but 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 tax requirements and providing better work conditions. Short-termism can also directly affect an organisations HRM ethics in other ways. Kreymeyer et al. (2006) carried out a survey of more than four 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 cancel new projects, even if the cancellation of thoseShow MoreRelatedCase Study148348 Words   |  594 Pageslittle full-time work experience the text should prove useful in providing a systematic approach and illustrations of strategy in practice. The illustrations and case examples in the text (and associated work assignments) should be used to relate theory to practice. Case studies and the video material should be used in fairly focused ways – in order to consolidate that stage in the learning – rather than in an all-embracing way 9  © Pearson Education Limited 2011 Johnson, Whittington and Scholes