Stakeholder Theory Vs Shareholder Theory

One of the greatest decisions facing corporate directors today is whether corporations should concentrate on shareholder interests or stakeholder interests. Shareholder theory states a manager’s “responsibility is to conduct the business in accordance with shareholder desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom” (Milton Freidman). Whereas Stakeholder theory states “management should actively explore its relationships with all stakeholders in order to develop business strategies” (Edward Freeman). While both theories focus on how managers should make business decisions, one emphasizes importance on shareholder interests, and the other is emphasizes the significance of stakeholder interests. Is it the responsibility of the corporate directors to focus on a shareholder interests or on stakeholder interests? Several arguments can be made in favor of corporate directors focusing primarily on a shareholder interests. One of the main arguments is that “corporate executives are selected by stockholders, and that executive is an …show more content…
Proof of this argument is seen in how Sound Transit Light Rail involved the communities input for route extensions. Sound Transit placed a large importance on gaining support from stakeholders when the company was planning further route extension. The company held well-publicized public meetings, collected and read letters from property owners, held online interactive forms, and had information booths at varies festivals and fairs. The company knew that in order for its light rail projects to be successful it need to take into account stakeholder 's opinions on the proposed