Introduction:
Freeman’s stakeholder model is the ideal normative guide for managers because it captures important variables and societal values such as fairness that the stockholder and market-failure models overlook. This enables managers to make decisions that lead to a socially optimal result.
Why not the stockholder model:
Friedman champions the stockholder model which states that a manager has a fiduciary duty to maximize shareholder profits. When shareholders give their money to the manager they expect the money to be spent serving their interests. The manager would be wrong to use the money for any other purpose as it is not her money to spend. Doing so would be akin to taxing shareholders, and not only does Friedman argue that …show more content…
Stakeholders, under a narrow definition include groups that are critical to a firm’s success; employees, suppliers, and customers. Under a wider definition, stakeholders include any group or individual that stands to be affected by a firm’s actions. I agree that the narrow definition is arbitrary and prone to bias toward the well-organized voices. I argue that the wider definition on the other hand, is ideal for today’s globalized economy. This broad scope enables the model to apply fair moral judgements consistently, irrespective of boarder lines or …show more content…
The stockholder model explains that individuals who operate on self-interest inadvertently maximize social utility. I showed that this is not the case in light of negative externalities. The market-failure model argues that firms follow preferred methods of competition to reinforce the market system which in turn generates the maximum social utility. However, I distinguished Pareto-optimal from social-optimal because a situation can be Pareto-efficient but unfair. Stakeholder theory maximizes social benefit in a way that the other two, economic-focused models cannot; it recognizes fairness. Stakeholders are protected by a charter which sees them as equals. The stakeholder model is the only model that captures all the relevant variables, making it the best-equipped to produce the most socially-desirable
Freeman’s stakeholder model is the ideal normative guide for managers because it captures important variables and societal values such as fairness that the stockholder and market-failure models overlook. This enables managers to make decisions that lead to a socially optimal result.
Why not the stockholder model:
Friedman champions the stockholder model which states that a manager has a fiduciary duty to maximize shareholder profits. When shareholders give their money to the manager they expect the money to be spent serving their interests. The manager would be wrong to use the money for any other purpose as it is not her money to spend. Doing so would be akin to taxing shareholders, and not only does Friedman argue that …show more content…
Stakeholders, under a narrow definition include groups that are critical to a firm’s success; employees, suppliers, and customers. Under a wider definition, stakeholders include any group or individual that stands to be affected by a firm’s actions. I agree that the narrow definition is arbitrary and prone to bias toward the well-organized voices. I argue that the wider definition on the other hand, is ideal for today’s globalized economy. This broad scope enables the model to apply fair moral judgements consistently, irrespective of boarder lines or …show more content…
The stockholder model explains that individuals who operate on self-interest inadvertently maximize social utility. I showed that this is not the case in light of negative externalities. The market-failure model argues that firms follow preferred methods of competition to reinforce the market system which in turn generates the maximum social utility. However, I distinguished Pareto-optimal from social-optimal because a situation can be Pareto-efficient but unfair. Stakeholder theory maximizes social benefit in a way that the other two, economic-focused models cannot; it recognizes fairness. Stakeholders are protected by a charter which sees them as equals. The stakeholder model is the only model that captures all the relevant variables, making it the best-equipped to produce the most socially-desirable