Stakeholder Vs Stockholder Theory

1850 Words 8 Pages
In this essay I will argue that the stakeholder theory in determining the social responsibilities of corporations is morally superior in contrast to the stockholder theory. Managers should have moral obligations toward stakeholders’ interests in the decision-making process, and not merely focus on maximizing profits for shareholders. By referencing Milton Friedman, Edward Freeman and Joseph Heath’s papers on corporate social responsibilities, I will first criticize Friedman’s stockholder approach is morally intolerable because his approach treats some stakeholders as means, which is not common-sense morality. Instead, my view is consistent with Heath’s view about the stockholder model that the fiduciary obligation for managers toward shareholders …show more content…
In Joseph Heath’s paper “Business Ethics without Stakeholders”, he exposes that the fiduciary relationship between managers and shareholders seems like “concepts with explicit moral overtones” which might derive from the thoughts on serving “as a natural point of departure for the development of a theory of business ethics” (p.108). Yet, “[it is still a] blurring of the distinction between the pursuit of self-interest on the part of individuals and the maximization of profit on the part of firms” (p.109) Thus, the potential “moral hazard in the relationship between managers and shareholders” is likely to be misjudged and the genuine conflicts also arise since manager is unable to take shareholders’ side instantly for every moral action he made. He questions how far beyond a manager should rely on shareholder’s interests without noticing stakeholder’s concerns in which it reveals that there are “limitations of any theoretical approach to business ethics that takes obligations to shareholders as the sole criterion of ethical conduct in business” (p.112) My view is consistent with Heath’s view on the stockholder model in which I will argue that even though managers should act towards owner’ …show more content…
He first criticizes that the dominant model requires stability and predictability, and thus, can be no longer assured because the model is resistant to change, not consistent with law state and not consistent with ethics in today’s world. He argues that business is “a set of relationships among groups which have a stake in the activities that make up the business” (p.97) After that he states his stakeholder approach by listing all those individuals and groups that are affected by the company’s policies, procedures and actions and then argues that, “businesses, and the executives who manage them, actually do and should create value for customers, suppliers, employees, communities, and financiers (or shareholders). And, that we need to pay careful attention to how these relationships are managed and how value gets created for these stakeholders” (p.93) He claims that managerial task and the entrepreneurial task is all about balancing primary and secondary stakeholders’ interests, and thus, a successful business should create value for customers, employees, suppliers, communities and financiers, consumer advocate group, special interest group, government and all other people (p.98). Managers have multiple fiduciary obligations to each group of people, not merely any one of their stakes or stakeholders because

Related Documents