Tinged Shareholder Theory
Question a)
What are the responsibilities of a company?
Martin Friedman believes that businesses do not have any moral obligations or social responsibilities at all, other than to maximize their own profit. This view is called “Shareholder Theory”. Friedman argued that a company should have no social responsibility to the public or society because it’s only concern is to increase profits for itself and for its shareholders. He states that, when companies concern themselves with the community rather than focusing on profits, it leads to totalitarianism.
In this traditional view of the firm, the shareholders or stockholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them.
The Friedman doctrine is controversial because there is general opinion that working by this concept makes citizens become impoverished while corporate elites gain enormous wealth.
Nowadays the world considers this statement as an ethical egoism position and in this purport a second theory was created, the stakeholder theory.
Stakeholder theory argues that there are other parties involved, including employees, customers, suppliers, financiers, communities, governmental bodies, political groups, trade associations, and trade unions. Even competitors are sometimes counted as stakeholders - their status being derived from their capacity to affect the firm and its stakeholders.
This theory differentiates three levels of stakeholder recognition:
Descriptive / empirical
Describes the firm as a constellation of co-operative and competitive interests
Instrumental
Firm assumed to have conventional objectives, such as maximization of shareholder value.
Recognition that other stakeholders are instrumental (a means to an end) in pursuit of those objectives
Normative
Stakeholders are identified by their interests in the firm.
The interests of all (some) stakeholders are of intrinsic value
The firm
What are the responsibilities of a company?
Martin Friedman believes that businesses do not have any moral obligations or social responsibilities at all, other than to maximize their own profit. This view is called “Shareholder Theory”. Friedman argued that a company should have no social responsibility to the public or society because it’s only concern is to increase profits for itself and for its shareholders. He states that, when companies concern themselves with the community rather than focusing on profits, it leads to totalitarianism.
In this traditional view of the firm, the shareholders or stockholders are the owners of the company, and the firm has a binding fiduciary duty to put their needs first, to increase value for them.
The Friedman doctrine is controversial because there is general opinion that working by this concept makes citizens become impoverished while corporate elites gain enormous wealth.
Nowadays the world considers this statement as an ethical egoism position and in this purport a second theory was created, the stakeholder theory.
Stakeholder theory argues that there are other parties involved, including employees, customers, suppliers, financiers, communities, governmental bodies, political groups, trade associations, and trade unions. Even competitors are sometimes counted as stakeholders - their status being derived from their capacity to affect the firm and its stakeholders.
This theory differentiates three levels of stakeholder recognition:
Descriptive / empirical
Describes the firm as a constellation of co-operative and competitive interests
Instrumental
Firm assumed to have conventional objectives, such as maximization of shareholder value.
Recognition that other stakeholders are instrumental (a means to an end) in pursuit of those objectives
Normative
Stakeholders are identified by their interests in the firm.
The interests of all (some) stakeholders are of intrinsic value
The firm
References: Wikipedia Class slides Tinged shareholder theory: or what 's so special about stakeholders? - Geoff Moore http://www.businessnewsdaily.com/1710-businesses-that-give-back.html http://smallbusiness.chron.com https://www.iveycases.com/ http://www.scu.edu