***Week 2 - Shareholder Theory vs Stakeholder theory

Question 1

1) Shareholder theory

2) Stakeholder theory

Answer 1

• against CSR type, fail max profit unethical Friedman, 1970 (property rights, utilitarian)
• in favour of CSR type activity (Multi-fiduciary stakeholder theory, goodpasters stakeholder theory)

Question 2

1) Shareholder theory: PROPERTY RIGHTS

Answer 2

• Owned property, decide, theft, fiduciary duties (responsibilities) to follow SH wishes
  ———-
• assume max profit & CSR doesn’t max
• corporate property not same as personal (Desjardins, 2009)

Question 3

1) Shareholder theory: UTILITARIAN

Answer 3

• moral theory right action/greatest hap greatest number people, money SH ethical responsibility, free markets where each business focuses on max profit
• Pursuit of profit doesn’t always max sat consumer demand, tragedy of the commons over- fisihing , satisfaction of consumer demand not the same as happiness (Desjardins 2009)

Question 4

Things about stakeholders

Answer 4

• group/ individual affected by the achievement of the organisations objectives’ Freeman, 1984
• Descriptive (how business engage with Stakeholders)
• Instrumental ( how how use stakeholders make profit)
• Normative (why comp ethical response to stakeholders)

Question 5

2) Stakeholder theory: MULTI-FIDUCIARY STAKEHOLDER THEORY

Answer 5

• run benefit all stakeholders (including shareholders
• describe theory as ‘Kantian’ means to end, 2 key principles
  1) the principle of corporate legitimacy (managed for benefit of its stakeholders)
  2) The stakeholder fiduciary principle (it must act in the interests of the stakeholders as their agent)
  ———-
• relationships SH special? fiduciary duties conflicting interests Marcoux 2003, no method balancing, treating means to end doesn’t require much

Question 6

2) Stakeholder theory: GOODPASTERS STAKEHOLDER THEORY

Answer 6

• Have fiduciary duties to SH
• non-fiduciary duties to other stakeholders (which may go above and beyond law, no harm, coerce, lie, cheat or steal)
• SH also non-fid too, they are people, Goodpasters ‘Nemo Dat Principle’, nobody gives what he does not have
• SH cant give managers right pollute, treat employee unfairly etc (Goodpaster, 1991)
  ———
• too many stakeholders, ‘include virtually everyone, everything’ (Sternberg, 1997)

Question 7

Additional reading - shareholder & stakeholder

Answer 7

1) property rights- in its modern form supports the stakeholders theory instead ( Donaldson, 1995)
2) normative implication is that managers maximise the net value of the firm, supposed to be the shareholders goal (Shankman, 1999)
3) cannot equate ‘owning capital’ to ‘owning the firm’ (Fama, 1980)
4) modern business distinguish between providers of capital, and managers who execute decisions (Maitland, 1994) happy with profit (Fama, 1980)