THE STOCKHOLDER THEORY. http://www.businessinsider.com/ford-motors-is-closing-factories-and-shipping-jobs-overseas-2010-10, http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html, http://www.reuters.com/article/us-davos-meeting-inequality-idUSKBN0KS0SW20150119, http://www.statisticbrain.com/outsourcing-statistics-by-country/, http://www.usnews.com/news/blogs/data-mine/2014/12/11/outsourcing-to-china-cost-us-32-million-jobs-since-2001. Lower Hutt, NZ: Scholes, V. Rueters.
A great example that has caught media attention (this is election season – November 2012) is the example of several business owners who are strongly encouraging their employees to be active in the election of the candidate that they feel will provide favorable business conditions for their business. Shareholders must start to invest in more sustainable stakeholder focussed companies whose management are aimed at greater returns for all stakeholders. It addresses morals and values in managing an organization, such as those related to corporate social responsibility, market economy, and social contract theory. Module 4, 71203 Business Ethics. As wealth accumulation appears to be leaning more towards the 1% who now account for just over half of all investing, it is then these people who need to re-educate themselves as to what constitutes a good investment and a good return on that investment. Economist Milton Friedman introduced this idea in the 1960s, which states a corporation is primarily responsible to its shareholders. In Part Two – we’ll explore in layman’s terms the Stockholder Theory and look at how it might apply in business today! Let’s see how the Stockholder Theory would apply as it relates to our example – Apple. Example – Apple Computer (now the world’s most valuable company) has a mission statement as follows: Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. All Rights Reserved. When companies can’t get away with polluting the airways and the waterways in their port of origins due to the uproar and reputation it would have on their bottom line, they simply find somewhere where it is legally permissible to do so. [3][9], Left-wing social activist Naomi Klein argued in her 2007 book The Shock Doctrine that adherence to the Friedman doctrine has impoverished most citizens while enriching corporate elites. Shareholder Theory (Martin Friedman) Shareholder Theory: Given that businesses are moral individuals—or at least can ... are some examples of good things that businesses can do for the public.
[2], He argued that the appropriate agents of social causes are individuals—"The stockholders or the customers or the employees could separately spend their own money on the particular action if they wished to do so. In large companies that produce products for the public where safety features are an issue, when the brake pedal problem was first noticed by Toyota, long before the recall in 2009, an effort should have been made by interested stakeholders in dealing with the problem. So when looking at this theory, what does this all mean? For the everyday project manager, when handed a project, consider your stakeholders and answer these questions to help you understand the fundamentals of stakeholder theory and implement them: Part of stakeholder theory is the element of awareness, involved decision making, and keeping the integrity of any project first and foremost. Retrieved from http://www.businessinsider.com/ford-motors-is-closing-factories-and-shipping-jobs-overseas-2010-10 Freeman, R. E. (2004). Retrieved from http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html Loomis, E. (July 22, 2013). “The theory that keeps you out of federal prison!”. Say the project at hand is to develop a new menâs electric razor. External Stakeholders â These are key in gaining required supplies and parts for the electric razor.
A good investment must include a company that considers all stakeholders as holding a valued share in the affairs of the business and not just whether a business offers a better financial return than other options. Friedman introduced the theory in a 1970 essay for The New York Times titled "A Friedman Doctrine: The Social Responsibility of Business is to Increase Its Profits". 1. [10], Other scholars argue that it is unhealthy and counterproductive to the companies that practice it. "[6] The Economist said in 2016 that a focus on short-term shareholder value has become "a license for bad conduct, including skimping on investment, exorbitant pay, high leverage, silly takeovers, accounting shenanigans and a craze for share buy-backs, which are running at $600 billion a year in America".[7]. "[20] John Friedman (no relation to Milton Friedman), writing in the Huffington Post in 2013, said: "Mr. Friedman argues that a corporation, unlike a person, cannot have responsibility. (2015). In 2019, Jerry Useem writing in The Atlantic[11] and prominent Democratic Senators Chuck Schumer and Bernie Sanders writing in The New York Times[12] argued that shareholder theory, which promoted a rise in stock-based compensation, has led executives to enrich themselves by implementing stock buybacks—often to the detriment of the companies they work for. © 2020 Chuck Gallagher. Insofar as his actions lower the wages of some employees, he is spending their money.
YOUR COMMENTS ARE WELCOME! [1] This shareholder primacy approach views shareholders as the economic engine of the organization and the only group to which the firm is socially responsible. Since there is a concept of social justice (fairly compensating someone for work performed in a humane way) when it comes to employees, Apple had to listen to concerns from the public (consumers) who complained that Apple’s bottom line was not enough. [5], In September 2020, fifty years after publishing "A Friedman Doctrine", The New York Times published 22 short responses to Friedman's essay written by 25 prominent people. As key owners (shareholders) of the many large companies, this 1% still have major influence over the rest of us 99% and thus contribute way more to the ethical foundations of big business than their numerical value may suggest. If he really believes what he says, aren't you a fool to do business with him? It has led to a set of behaviors by many actors on a wide range of topics, from performance measurement and executive compensation to shareholder rights, the role of directors, and corporate responsibility. Managers must also be aware that stakeholders, no matter what level, do offer an element to the project and each stakeholder must be aware of what the others are contributing. Copyright © 2020 Bright Hub PM. Under this theory, the actions (ethical choices) of those empowered to run the business are limited to expending business resources in ways that meet the stockholders interests or are aligned with the stockholders interests. There are ways to define your stakeholders through a stakeholder analysis and stakeholder prioritization.
Management may only consider the other stakeholders if and only if it is in the best interests of their primary stakeholder. Let’s first start with why a business is formed… Businesses (organizations) take many forms – for profit, not-for-profit, associations, education, government, etc. When considering the stakeholder theory and its fundamentals, project managers must look at how project could be harmed or if the integrity of the outcome is influenced by the lack of stakeholder involvement. We Don’t Hire Convicted Felons!
The shareholder theory is an idea that has been predominate in American business practices for the last 25 years as of 2015, according to The Economist. âThe first is that organizations are dependent on their stakeholders for their successes and failures.â And, âThe second is based on the multifaceted theory of ethics.â. If one takes a look at Toyota and the recent brake pedal recall, the subsequent events from US transportation safety agencies resulted in $16 million in fines for Toyota for not releasing the problem and hiding a defect. On the other hand, if a company is formed with stockholders directing that part of the company mission is to provide local jobs, then ethics would dictate that management choices would favor the objective over the cost minimization. Harvard Business School professors Joseph L. Bower and Lynn S. Paine said in 2017 that the Friedman doctrine is "distracting companies and their leaders from the innovation, strategic renewal, and investment in the future that require their attention", puts companies at risk of "activist shareholder attack", and puts "managers ... under increasing pressure to deliver ever faster and more predictable returns and to curtail riskier investments aimed at meeting future needs. The significant issue under the Stockholder Theory is that the stockholders rule over any other “social responsibility” that might be perceived by outsiders. As there are three leading practical theories of business ethics – the Stockholder, the Stakeholder and the Social Contract Theories. Let’s see how the Stockholder Theory would apply as it relates to our example – Apple. Internal Stakeholders â The project manager needs to assign tasks within the teams working on the electric razor.
If this fundamental change of values doesn’t start becoming the trend of the majority, than management, who ultimately are responsible to act on their shareholders behalf, will just continue to find loopholes in the regulatory systems of other nations in order to boost the financial return for their investors. As such, the goal of the firm is to maximize returns to shareholders. "[5] In 2016, The Economist called shareholder theory "the biggest idea in business", stating "today shareholder value rules business". This is ultimately why laws have had to be made and public protests carried out.
[2] He justified this view by considering to whom a company and its executives are beholden: In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. Shareholder Theory vs. Stakeholder Theory Shareholder theory claims corporation managers have a duty to maximize shareholder returns. Upper Saddle River, NJ: Pearson Education.