Shareholder theory equates to an influential view on the role of business in society which pushes the idea that the only responsibility of managers is to serve in the best possible way the interests of shareholders, using the resources of the corporation to increase the wealth of the latter by seeking profits.
What does stakeholder theory suggest?
Stakeholder Theory is a view of capitalism that stresses the interconnected relationships between a business and its customers, suppliers, employees, investors, communities and others who have a stake in the organization. The theory argues that a firm should create value for all stakeholders, not just shareholders.
Shareholders are always stakeholders in a corporation, but stakeholders are not always shareholders. A shareholder owns part of a public company through shares of stock, while a stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation.
Shareholder Theory thus has the (epistemological) advantage of allowing management to conduct the affairs of the firm with a clear eye on fulfilling its obligations to the shareholders, that one group whose interests are typically both transparent and uniform.
Applying the Stakeholder Theory to Your Business
- Step 1: Define Your Stakeholders. Start off by defining who your stakeholders are. …
- Step 2: Analyze Your Activities. …
- Step 3: Understand Your Gaps. …
- Step 4: ‘Do Something Different’
The famed economist’s “shareholder theory” provides corporations with too much room to violate consumers’ rights and trust. … While the statement is a welcome repudiation of a highly influential but spurious theory of corporate responsibility, this new philosophy will not likely change the way corporations behave.
What is an example of stakeholder theory?
As an example of how stakeholder theory works, imagine an automobile company that has recently gone public. Naturally, the shareholders want to see their stock values rise, and the company is eager to please those shareholders because they have invested money into the firm.
CSR prioritizes one aspect of business – its orientation toward the society at large, i.e. its social orientation – over the other business responsibilities. Stakeholder theory posits that the essence of business primarily lies in building relationships and creating value for all its stakeholders.
What is stakeholder theory and why is it important?
Stakeholder theory holds that company leaders must understand and account for all of their company’s stakeholders — the constituencies that impact its operations and are impacted by its operations. Stakeholders include employees, shareholders, customers, suppliers, creditors, the government, and society at large.
Enlightened shareholder value (ESV) is the idea that corporations should pursue shareholder wealth with a long-run orientation that seeks sustainable growth and profits based on responsible attention to the full range of relevant stakeholder interests.