DISPUTE ARISING BETWEEN THE TWO THEORIES
1. Introduction
A company should pursue economic profitability in order to survive. However, today, it has been brought to awareness that a company also has social responsibilities towards a number of people working together to achieve its aim. An analysis of the shareholder and stakeholder theories has led to the conclusion that these two are very much contradictory, resulting in a debate as to which theory will help embrace good corporate governance.
This chapter will thus analyse the different reasons why each theory is a much better choice and any drawbacks which make them inappropriate in the modern corporate world.
2. The Shareholder Theory
2.1 Arguments in favour of the Shareholder …show more content…
While some believed the theory was founded on a principle of fairness, others considered human beings as moral agents to be regarded as the ends in themselves . However, the fact that the theory also considered non human constituents such as the environment to be a stakeholder proves that there is a lack of solid normative foundation.
3.2.2 Lack of clarity
One of the most common criticisms of the stakeholder theory is the fact that it lacks clarity, is vague and ambiguous. First and foremost, defining the theory itself proved difficult. Furthermore, the identification and definition of the stakeholders and their interests were also a blurry task since managers had no method of doing so.
It is true that some stakeholders are more important than others but since there is no indication as such of how to determine this , another problem faced is that of the balancing of interests. Indeed, without a clear knowledge of the stakeholders, the directors will not be able to ensure a fair balancing of interests and claims .
Thus, opponents of the stakeholder theory believe that this theory encourage directors to act in their own interests due to lack of clear
1. Introduction
A company should pursue economic profitability in order to survive. However, today, it has been brought to awareness that a company also has social responsibilities towards a number of people working together to achieve its aim. An analysis of the shareholder and stakeholder theories has led to the conclusion that these two are very much contradictory, resulting in a debate as to which theory will help embrace good corporate governance.
This chapter will thus analyse the different reasons why each theory is a much better choice and any drawbacks which make them inappropriate in the modern corporate world.
2. The Shareholder Theory
2.1 Arguments in favour of the Shareholder …show more content…
While some believed the theory was founded on a principle of fairness, others considered human beings as moral agents to be regarded as the ends in themselves . However, the fact that the theory also considered non human constituents such as the environment to be a stakeholder proves that there is a lack of solid normative foundation.
3.2.2 Lack of clarity
One of the most common criticisms of the stakeholder theory is the fact that it lacks clarity, is vague and ambiguous. First and foremost, defining the theory itself proved difficult. Furthermore, the identification and definition of the stakeholders and their interests were also a blurry task since managers had no method of doing so.
It is true that some stakeholders are more important than others but since there is no indication as such of how to determine this , another problem faced is that of the balancing of interests. Indeed, without a clear knowledge of the stakeholders, the directors will not be able to ensure a fair balancing of interests and claims .
Thus, opponents of the stakeholder theory believe that this theory encourage directors to act in their own interests due to lack of clear