Stockholder vs Stakeholder Model

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Michelle Li Business Ethics Dr. Brendan Hogan 11 March 2014 Stockholder vs Stakeholder Model Although both theories articulate what a corporation’s role should be, they have different ideas of how to enforce these theories. Stakeholder theory is a theory created by Edward Freeman, a philosopher, who believed that all stakeholders should be taken into account when making decisions for the company. Stakeholders who are directly involved in a corporation are identified as investors, employees, suppliers, and customers. The stakeholders indirectly involved are the government, trade unions, community groups, or political parties. By identifying stakeholders, the corporation can decide which groups need to be managed. Freeman believed that there were moral, practical, and strategic planning reasons for attending to stakeholders. Corporate Social Responsibility (CSR) is a reason for moral attention to stakeholders such as the general public. By disregarding stakeholders, shareholder value can be destroyed. The stakeholder theory focuses more on who is being affected and that the leaders have an obligation to other stakeholders. Corporations who make a large profit should contribute to the improvement of society. The theory of stockholders was created by Milton Friedman. His theory was based on the idea that shareholders are the only types of stakeholders that matter. The main purpose of a corporation is to make a profit and increase shareholder value. Shareholders only own a part of the company through stock ownership. Friedman believed that the corporate executive is a person in his own right and his responsibilities are personal and of the individual. By voluntarily doing so, he is using his own money, time, and energy rather than the company’s. Friedman uses the example of stopping the increase of the price of the product to prevent inflation, but this would be

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