Notwithstanding, it does not also mean that company should act and be accountable only in respect of shareholders who delegate them the governance of the company. From the point of shareholder primacy, the primary aim of corporations is to focus on the company and be accountable to shareholders, and thus focus ‘on stakeholders only to the extent that this is required by law and by concerns for the firm`s reputation, credibility and image’. So, Enlightened Shareholder Theory stands for the rejection of shareholder primacy (the effect of the shareholder theory can be seen from the Enron crisis where managers were required to increase profit to shareholders and, thus it encouraged managers to make manipulations with accounts of the company) and focus on other stakeholders` interests
In Loewen’s case, the risky acquisition strategy would have been rejected. • By adding up the number of independent directors, enhancing transparency, hiring an outside CEO, to make the board separate from the influence of the management, and ensure the shareholders be informed about the company real situation. CONCLUSION Because the exist of principle-agent issues, companies need good corporate governance to make each participant devote its own responsibilities. A conscientious independent board is essential in protecting shareholders and company’s interest. Word count: 990
However, the Stakeholder theory states that a manager’s duty is not only to focus on shareholder’s interests, but also to balance them against the interests of the company’s other stakeholders. Freeman believes that managers should take into account their customer’s, supplier’s and employee’s interests, even if it brings about a decrease in shareholder returns (Smith, 2003). This is being expanded on because Freeman believes that if Friedman were alive today, he would be a supporter of his Stakeholder Theory. Simply because, in today’s day and age, globalization and increased competition in the markets has led to corporations having to rely not only their shareholders for support but on all their stakeholders (Makower,
He contends that corporate executive management are agents working on behalf of the shareholders and that there is no room for social responsibility since their sole role is fulfilling shareholders’ objectives, i.e. generating profits. Shareholders invest and expect a return on their investment - the reasoning could not be any clearer. If we switch roles for a moment and try to understand how a shareholder thinks, the logic is even more understandable. By investing in a company, a shareholder expects dividends; if corporate executives use a portion of this investment for philanthropic eleemosynary, questions may be raised around their rights to contribute socially without appropriate authorizations.
Issues in Rapid Packaging Services Many people in the marketing realm disagree on the purpose of business ethics with some arguing that the main purpose of any business is profit maximization to the owner/shareholders. Others suggest that own interest would require business to observe law and basic moral responsibility because the implication of failing to do that would be expensive to the company in terms of fines and loss of company reputation. In addition, any business should have moral responsibilities both to those that are affected by the business directly such as stakeholders and indirectly such as state government (Amstrong &Evert, 1991). In business field, oft... ... middle of paper ... ... C. and Charlotte B. B.
Thus, it is crucial to assess different mechanisms (incentives and corporate in particular) which may help improve motivation with perspectives from economists, sociologists and psychologists. Incentives take an economists’ approach since it is strongly linked to the theory of principle and agent. Due to the separation of ownership and control, there is a misalignment between objectives of shareholders and employees. The shareholders’ main goal is to gain profits for the firm whilst having to control the employees’ actions. Problems such as not being able to monitor what the employees are buying and what they should can lead to losses.
It has been predominantly found to occur in companies where the directors are the agent and the shareholders who are the owners of the company is the principal. It is not unusual for managers to sometimes want to pursue their own interests at the expense of the company to whom they have a duty to act in its best interest. Certain decision-taking may not be in the interest of the company for example, excessive risk taking without foresight of the long term consequences. Most times the action and inactions of management may have dire consequences on the company which may in the long run stigmatize a company as an underperforming one. Consequently, managers who pursue their own interests rather than that of the company may underperform its duties.
The theory of corporate social responsibility is a constrain... ... middle of paper ... ...y conflicts of interests between different stakeholder groups. Secondly, the primary duty of directors or officers is achieving the best interest of the shareholder; the interests of shareholders should be taken into consideration only when they do not significantly damage shareholder’s interest .A redefinition of director’s duties in the law could be a burden for director to balance the interests of each parties appropriately. As a result, less efficient decisions would be made in such condition. Therefore, there should not be a change to the Corporate Act. Under the existing legal framework, ASX Listing rules are important supplementaries of Corporate Act.
The Evolution of the Corporation The Evolution of the Corporation In a capitalist society where the growth and power of corporations are ever evolving it is critical to determine the effects and consequences this evolution brings upon the business world. The Stockholder Theory maintains that managers should act merely as agents to the stockholder and only serve their interests-the maximization of profits (45). Milton Friedman's argument being, they are the owners of the business, and hence they should be entitled to all profits (45). Although this simple profit-motive concept may achieve the desired result, and address all of the interests of the stakeholders it lacks compassion that is so prevalent, and in my opinion superior, in the following theory. In Edward Freeman's A Stakeholder Theory of the Modern Corporation he suggests a transformation of the corporate system by replacing the notion that managers have a duty to stockholders with the concept that managers bear a fiduciary relationship to stakeholders (56).
This paper will have a detailed discussion on the shareholder theory of Milton Friedman and the stakeholder theory of Edward Freeman. Friedman argued that “neo-classical economic theory suggests that the purpose of the organisations is to make profits in their accountability to themselves and their shareholders and that only by doing so can business contribute to wealth for itself and society at large”. On the other hand, the theory of stakeholder suggests that the managers of an organisation do not only have the duty towards the firm’s shareholders; rather towards the individuals and constituencies who contribute to the company’s wealth, capacity and activities. These individuals or constituencies can be the shareholders, employees, customers, local community and the suppliers (Freeman 1984 pp. 409–421).