The Stakeholder Theory: Aiding in the Long Term Success of Corporations
The Stakeholder Theory: Aiding in the Long Term Success of Corporations
Managers of corporations, big and small, must make decisions everyday, incorporating the appropriate ethics and also maximizing corporate profit. The two major theories in decision-making are the Stockholder theory and the Stakeholder theory, both of which I will be explaining. First, I will explain the Stockholder theory as a short-term profit oriented model with regards to business ethics decisions. Then, I will explain how the Stakeholder theory and how it could be applied in the business ethics decision process. I intend to prove that the Stakeholder theory could provide the best support for a corporation in both the ethical decision-making and optimal performance in the long run
Milton Friedman, the developer of the Stockholder theory, stated, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it says within the rules of game, which is to say, engage in open and free competition without deception and fraud. ” (Friedman 69). He separated the idea of business ethics into business decisions and ethical decisions, two concepts that could be explained independently. As defined by Friedman, the stockholders are the people who own a share of the stock, and only they have a moral claim on the corporation. The stockholder also means the founders of the corporation. In addition, the managers are only the agents of the individuals who own the corporation, and must carry out their duty towards the company’s stockholders by maximizing profits in their business decisions. Friedman stated the ethical regulations that are imposed by law were constraints to managers. From businesses’ point of view, managers should pursue profit maximization regardless of the ethicality of the decision. So when faced with the choice between an environmentally friendly but low margin product and one with a high margin
Managers of corporations, big and small, must make decisions everyday, incorporating the appropriate ethics and also maximizing corporate profit. The two major theories in decision-making are the Stockholder theory and the Stakeholder theory, both of which I will be explaining. First, I will explain the Stockholder theory as a short-term profit oriented model with regards to business ethics decisions. Then, I will explain how the Stakeholder theory and how it could be applied in the business ethics decision process. I intend to prove that the Stakeholder theory could provide the best support for a corporation in both the ethical decision-making and optimal performance in the long run
Milton Friedman, the developer of the Stockholder theory, stated, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it says within the rules of game, which is to say, engage in open and free competition without deception and fraud. ” (Friedman 69). He separated the idea of business ethics into business decisions and ethical decisions, two concepts that could be explained independently. As defined by Friedman, the stockholders are the people who own a share of the stock, and only they have a moral claim on the corporation. The stockholder also means the founders of the corporation. In addition, the managers are only the agents of the individuals who own the corporation, and must carry out their duty towards the company’s stockholders by maximizing profits in their business decisions. Friedman stated the ethical regulations that are imposed by law were constraints to managers. From businesses’ point of view, managers should pursue profit maximization regardless of the ethicality of the decision. So when faced with the choice between an environmentally friendly but low margin product and one with a high margin