ipl-logo

Shareholder Primacy And The Stakeholder Model

2119 Words9 Pages

Introduction In an incorporated company, the interests of shareholders are often at odds with the interests of other stakeholders. When making a decision under such circumstances, I will show that the business should balance each group’s interests equitably in order to determine how to act, as a result of a duty owed to each group for their contributions to the company. I will also critique some popular arguments in favour of the commonly held belief that a business should act primarily in its shareholders’ interests. The two competing models The debate about whose interests businesses should act in is dominated by two theories: Shareholder Primacy, and the Stakeholder Model. Under the Stakeholder Model, to answer the question of whose interests …show more content…

Arguments for Shareholder Primacy A common argument in favour of the opposing view – Shareholder Primacy – is that shareholders have rights of ownership, and therefore the business should be run in their interests (Stout, 2002). The complete argument is as follows: shareholders are the owners of the company, and it is wrong to use someone’s resources in ways that conflict with their interests (Fried et al., 2014). It is therefore wrong to use a company’s resources for purposes that do not further shareholders’ interests. However, there is a major problem with this argument: there are no legal grounds for the claim that shareholders own companies (Stout, 2002). Since companies are regarded as autonomous legal persons, they cannot be owned by any group of individuals (Heracleous & Lan, 2010). As a result, the claim that shareholders are the owners of companies is simply not true. Nonetheless, a proponent of this argument may attempt to show that this is just a legal technicality, and that shareholders do own the company in substance, or should be considered the owners of the company (Fried et al., 2014). One such argument attempting to show this is as …show more content…

One argument, by Milton Friedman, is that employees do not have the necessary skills or experience to do so (Friedman, 1970). Specifically, Friedman argues that a business manager is not “an expert in inflation” and thus does not have the required knowledge to fight inflation (ibid.). In a similar fashion, because employees of a business are not experts in achieving socially desirable goals, businesses cannot be morally obliged to contribute towards those goals (ibid.). A second argument, from classic economics, is that businesses operating in a competitive environment cannot afford to do anything other than maximise profits (Fried et al., 2014). Any business that fails to do so will not be able to sustain its existence, and hence businesses cannot have a duty to do anything other than maximise

Show More
Related
259 Words | 2 Pages

A Stakeholder is any individual who has a vested interest in a business and is affected by the organisations decisions and strategies (Pride, Hughes & Kapoor 2015, p. 10). Therefore, the people most affected by Graeter’s decisions to take a long term view of the business rather than aim for short term profits are the family members who have a stake in the business. At the present, Richard Graeter II (CEO), Robert Graeter (vice president of operations) and Chip Graeter (vice president of retail operations) manage the business and are responsible for all the decisions regarding its operations. Graeter’s management team have chosen to forgo the opportunity for short term profits by adhering to the traditional manufacturing process used by Louis

Read More
1016 Words | 5 Pages

A stakeholder is someone who has interest or concern for an organisation or business. Stakeholders can be affected by policies, aims and objectives. An example of stakeholders would be employees and the government. Stakeholders can be individuals, groups and organisations. Owners of a business would be concerned about profit the business or organisation makes.

Read More
349 Words | 2 Pages

The employer holds the right to sue, but not consumers A rising number of companies are including forced arbitration clauses in their contracts. What consumers and job seekers give up when they unknowingly give up their right to sue which is unjust? A Metamorphosis: How Forced Arbitration Arrived In the Workplace (Carmen Comsti, 2012)

Read More
336 Words | 2 Pages

(Investopedia, 2015) They are concerned in the business how much profit will be made. (BBC, 2014) The shareholders of the Leftfield Manufacturing Limited is the stakeholders in this situation. Second, for the managers, they are the

Read More
1063 Words | 5 Pages

Employee ownership refers to the phenomenon when employees own part or whole stock of the organization they work for. According to Bogetic’ (1993) employee ownership is not a complete and comprehensive way through which an organization can function rather it is a means through which profits can be enhanced. It is one of the methods that can be adopted to privatize the state owned enterprise and create a competitive mixed economy. Kruse (1996) adds on to this idea provided by stating that indeed employee ownership is encouraged in countries and organizational structures to promote the distribution of wealth. Economies of countries face a dilemma when the rich keep getting richer and nothing is done for the working class, such ownership in the

Read More
1043 Words | 5 Pages

The Stakeholder Salience Theory, created by Mitchell, Agle and Wood, are based upon the combination of the three relationship attributes to generate general types of stakeholders. These attributes include: Power; Legitimacy; Urgency. “Stakeholder salience” is defined as the degree to which managers give priority to competing stakeholder claims. Therefore if a stakeholder consist of all three attributes, he/she/it will be of most importance and will have more rights and privileges than a stakeholder that consists of only one of the three attributes. As seen in the picture on the right, you can differentiate between the different types of stakeholders, according to where they get placed given the attributes they consist of.

Read More
755 Words | 4 Pages

Stakeholder analysis Stakeholder are entity that will affect the organization actions, objectives and policies. There are two types of stakeholder which is internal stakeholder and external stakeholder. The McDonald’s stakeholders are customers, suppliers, employees, managers, government, local communities and pressure groups. Customers Customers are the external stakeholders of the company, no customer mean zero profit.

Read More
1181 Words | 5 Pages

Corporate Manslaughter refers to the decisions undertaken by a company that went wrong either in regards to their execution or due to the existence of some inherent fault or loophole in the decision making and its subsequent execution, resulting in or causing death of a person or persons. A company exists only in the contemplation of the law and thus cannot put behind bars in lieu of punishment hence, what can be imposed on the company is not imprisonment and fine only Justice Lindley has described the jurisprudential essence of the term company as follows, “A company is an association of persons, these persons contribute money or money’s worth to a common stock” .The common stock so contributed is denoted in money and is called as

Read More
1245 Words | 5 Pages

Social responsibility of business has been a debated topic for years. The ideas of different businessmen have had effects on the direction of business in this period. This essay analyses two texts, which have Milton Friedman’s arguments about social responsibility of business and John Friedman’s ideas about Milton Friedman’s, by comparison and contrast method and includes this writer’s evaluation. Milton Friedman’s text is about the effects of the name of social responsibility on a private property system including executives, stockholders, employees and customers. He gives us some assumptions and examples of their potential results and impacts on corporations to express his ideas clearly.

Read More
1954 Words | 8 Pages

Mergers and Acquisitions and Shareholder Wealth: The theory of finance states that maximization of shareholder wealth should be the goal of every business organization. It is not clear, however, whether maximization of shareholder wealth is the main motivation behind Mergers and acquisitions. This has generated a lot of research interest the area. Unfortunately decades of intensive research have not been able to conclusively establish the impact of Mergers and acquisitions on shareholder wealth.

Read More
864 Words | 4 Pages

CSR and its relevance in modern capitalist society CSR has been one of the biggest corporate fads starting the 1990’s, it was less overpowering then but it has now gained power in the form of laws upholding it. Greed seems to have gone out of the picture or at least seems to have, corporate virtue in the form of CSR is in. But is this a good thing, possibly not because from the ethical lens the problem with conscientious CSR is obvious, it is generosity at other people’s expense. In the next few paragraphs I will try to explain more on why CSR is an unsustainable concept in the context of capitalism. However, in order to understand this, it is necessary to look at what economic and social theorists had to say about capitalism itself.

Read More
1685 Words | 7 Pages

Corporate social responsibility means that businesses have wider responsibilities than simply to their shareholders – they also have responsibilities towards other stakeholders, as well as the environment. Scholars such as Robert Solomon believe that businesses should take on these responsibilities, as they have a duty to behave ethically. Solomon believed that a person should follow their own personal values and attempt to stay ethical no matter whether they are at home or at work. Others, such as Milton Friedman and former British Prime Minister Margaret Thatcher, argue against the idea of corporate social responsibility, believing that the only responsibility of a business is to increase its profits for its shareholders. Friedman went on to argue that for a business to take money from their profits to fund corporate social responsibility projects is equivalent to stealing money from shareholders and is therefore unethical.

Read More
946 Words | 4 Pages

Stakeholder theory gained momentum and increased in significance during the mid-1980s. According to Freeman (as cited by Appiah, 2016) stakeholder theory contributed to reconceptualizing the fundamental manner through which firms operated, and leaders behaved, with the focus shifting toward external stakeholders. Foster & Jonker stated that the introduction of the stakeholder theory helped change the way in which organizations operated when the emphasis had historically been on internal stakeholders, in which the stakeholder theory altered this operation and implied relevance to external groups and communities (as cited by Appiah, 2016) Simmons said that with the advent of the stakeholder theory, organizations were compelled to assume greater

Read More
2393 Words | 10 Pages

Here you look on the difference between benefits and harms for the society and if the benefits are greater than the decision or an action is considered as ethical, if lower – unethical. Here it is important to identify the stakeholders and an effects on them from actions or decisions of a company. “You can think of a stakeholder as a person or organization that can affect or be affected by your organization. Stakeholders can come from inside or outside of the organization. Examples of stakeholders of a business include customers, employees, stockholders, suppliers, non-profit community organizations, government, and the local community among many others.”

Read More
1039 Words | 5 Pages

The earlier opinion stated that a business cannot be ethical, but this opinion is not used anymore in the modern business. Today business has belief that they must be responsible for social since they live and operate within a social structure. The key factors that make business ethics is important at the quarter of the 20th century are corporate social responsibility, corporate governance, and globalized economy. The culture of an organization, or else we can call it as the philosophy of an organization which is related with ethics have a great relationship with the performance of a business in long and short term. As a business is manage by human being, the people who manage a business

Read More

More about Shareholder Primacy And The Stakeholder Model

Related Topics

Open Document