Stakeholder's Paradox
The stakeholder’s paradox, according to Kenneth Goodpaster, is that neither Milton Friedman and Ed Freeman’s theories about stakeholders is completely right
Milton Friedman says that a company’s main goal is to maximize profits only to the stockholders. The owners own the corporation and therefore the profits belong to them. So why care about anyone else other than the shareholders? Everyone else involved are merely strategic tools that assist in some way to maximize profits but don’t benefit in the same way a shareholder does. Saying this pretty much says that the non-owners are not human, and are just tools used to help maximize profits for the owners.
Ed Freeman on the other hand says something a bit different. He says that both the owners and stakeholders have a right to demand certain actions from management because they all have a vested stake in the corporation. But saying this makes everyone equal when they are really not.
Kenneth Goodpaster says neither is completely right and takes a little bit of both theories to come up with the conclusion that yes the owners are important but we should also take into consideration the needs and feelings of the stakeholders too, since after all they are human and not mere strategic tools. Goodpaster still agrees that the corporation’s purpose is to maximize profit for its owner.
Goodpaster basically says everyone matters but not necessarily in an equal way like Freeman puts it. Obviously the stockholders are considered more special in a way than the stakeholders because they are fronting the money to run a corporation. Not that the stockholders are more important to management but their relationship with management is different that the relationship management has with the stakeholders. Management is obligated to do their job by
contract with the stockholder. They have committed themselves to do so. They are to maximize profits for the stockholder because that is what they signed up for, it is their job.
Milton Friedman says that a company’s main goal is to maximize profits only to the stockholders. The owners own the corporation and therefore the profits belong to them. So why care about anyone else other than the shareholders? Everyone else involved are merely strategic tools that assist in some way to maximize profits but don’t benefit in the same way a shareholder does. Saying this pretty much says that the non-owners are not human, and are just tools used to help maximize profits for the owners.
Ed Freeman on the other hand says something a bit different. He says that both the owners and stakeholders have a right to demand certain actions from management because they all have a vested stake in the corporation. But saying this makes everyone equal when they are really not.
Kenneth Goodpaster says neither is completely right and takes a little bit of both theories to come up with the conclusion that yes the owners are important but we should also take into consideration the needs and feelings of the stakeholders too, since after all they are human and not mere strategic tools. Goodpaster still agrees that the corporation’s purpose is to maximize profit for its owner.
Goodpaster basically says everyone matters but not necessarily in an equal way like Freeman puts it. Obviously the stockholders are considered more special in a way than the stakeholders because they are fronting the money to run a corporation. Not that the stockholders are more important to management but their relationship with management is different that the relationship management has with the stakeholders. Management is obligated to do their job by
contract with the stockholder. They have committed themselves to do so. They are to maximize profits for the stockholder because that is what they signed up for, it is their job.