Are Stockholders at Stake?

Are Stockholders at Stake?

The stockholder theory states simply that a company's only responsibility is to the stockholders of a corporation. A corporate executive is an employee of the company and in this theory has a responsibility to follow the directions and wishes of the owners of that business; the owners usually being the stockholders. The sole objective of any company according to Friedman is to make profits, a self-centered objective both personally and on a broader corporate level. You could say that stockholder theory is an offshoot of egoism. Egoism involves some form of self-satisfaction. In the business world executives produce profits to satisfy the self-interests and desires of the stockholders and the large salary package it produces for them.

Stakeholder theory operates on the basic idea that companies and their executives make decisions that create value not just for stockholders, but for all those who hold some interest in the business. These include customers, suppliers, employees, communities, and financiers including stockholders. It states that these groups are all interrelated and cannot be isolated. Each group is important to the success of the business so therefore, their needs and wants should be valued, just like stockholders. Together these groups produce a profitable company which creates the value for the stockholders. Ethical egoism fits well in this model because it deals with what a person ought to do to satisfy their wants and needs. Each of these stakeholders has wants and needs. If they do what they ought to do and consider everyone's needs, their actions will benefit themselves and each of the other groups and a profit will be made.

It is easy to see how stockholder theory is consistent with egoism. Friedman states, "The whole justification for permitting the corporate executive to be selected by the stockholders is that the executive is an agent serving the interests of his principal." (Beauchamp, Tom; Bowie, Norman; Arnold, Denis. Ethical Theory and Business. Eighth Edition. Prentice Hall. 2009. P53). Clearly he argues for the satisfaction of the needs and wants of the stockholders, further stating that the stockholders' primary need is to produce profits for the company. Friedman is describing what he sees as the primary function of a business. He sees no justification for any social responsibility on the part of the executives or the business. If the corporate executive should set a socially responsible objective such as lowering inflation, is he justified in lowering the profits to satisfy this goal that placates society? Doing so would not uphold the psychological egotistic position that Friedman takes because its objective is not profit orientated. He further discusses the positon of corporations who contribute to charities by saying, "In the present climate of opinion, with its widespread aversion to 'capitalism,' 'profits,' the 'soulless corporation,' and so on, this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified in its own self-interest." (Beauchamp 54) Friedman considers this practice hypocritical; propagating the opinion that the corporation performs such actions purely in its own self-interest.

If in fact these corporate actions of social responsibility were performed for the benefit of the recipients, they would fall into the classification of ethical egoism or duties that the company ought to perform to shed a positive light on their activities in the eyes

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