Stakeholdertheoryvsshareholdertheory

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INTRODUCTION There are two vastly different views when it comes to who and what a business is responsible for. These views are that of Freeman and Friedman (D, Saint, A, Tripathi. 2013). These different viewpoints and the implications that they hold for stakeholder management as well as investor relations will be discussed in detail in this essay. This essay aims to argue that in the modern business world Freemans viewpoint is most beneficial to contemporary businesses (D, Saint, A, Tripathi. 2013). The challenges and changes that organisations face today in terms of investor relations will also be explored. This essay will also aim to prove that social responsibility in business does benefit society and is not just a money-making tool that businesses use (Youngupstarts, 2013). FRIEDMAN'S VIEWPOINT WHAT IS FRIEDMAN'S VIEWPOINT? Milton Friedman expressed his belief of the shareholder theory in his book, Capitalism and Freedom, when he stated "there is one and only one social responsibility of business, to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.". Milton believed that an organisation's only responsibility is to make as much profit for the business's shareholders as possible. Milton states that by engaging in social responsibility to benefit the organisation's other stakeholders, it will take away from the business's main responsibility of maximizing profits for shareholders. THE SUGGESTIONS THAT FRIEDMAN'S VIEWS HOLDS FOR STAKEHOLDER MANAGEMENT According to Friedman, businesses should only focus on one stakeholder, the shareholder (D, Saint, A, Tripathi. 2013). Therefore other corporate stakeholders are overlooked and even ignored. The competing interests and priorities of various stakeholders are not prioritized or defined (D, Saint, A, Tripathi. 2013). Friedman suggests a more instrumental stakeholder approach for businesses as the business only pays attention and considers
those stakeholders that can impact the company's profits or ability to make a profit, thus preventing the company from achieving its primary responsibility, maximizing profits for shareholders (Argenti, P. 2013). A way that the business does this (maximize profits for shareholders) is to reduce cost by externalizing it by for example polluting the environment or by selling products that are a greater cost to society than they are to the business such as cigarettes (Youngupstarts, 2013). This presents many challenges for stakeholder management as the business hurts all stakeholders expect that of investors (Youngupstarts, 2013). THE IMPLICATIONS THAT FRIEDMAN'S VIEWS HOLDS FOR INVESTOR RELATIONS In a company that follows Friedman's view, investor relations, is one of or the most important departments in the organisation. This is because 'his capitalistic perspective sees the organisation owned by and operated for the benefit of the shareholders' (D, Saint, A, Tripathi. 2013). The shareholders are the only important constituencies of an organisation and the organisation has a 'binding fiduciary duty' to put the needs of investors first and make sure that investors are kept informed and happy, making investor relations very important (Youngupstarts, 2013). In this view, investor relations professionals and other managers of the organisation are merely agents of the organisation's shareholders. Investor relations professionals will have to carry out the very important task of keeping the shareholders informed and ensuring that investors have a positive image and perception of the organisation (D, Saint, A, Tripathi. 2013).
FREEMAN'S VIEWPOINT WHAT IS FREEMAN'S VIEWPOINT? Edward Freeman introduced his stakeholder theory in his book, Strategic Management: A Stakeholder Approach . Freeman's viewpoint challenges that of Friedman's discussed above. Freeman states that the organization needs to consider and has a responsibility towards all stakeholders, not only shareholders. Stakeholders are all those people who are affected by or who affect the organization. Examples of stakeholders are customers, employees, managers, shareholders, members of society, suppliers and in some cases competitors.This approach believes that corporate conscious is more important than maximizing profits for shareholders. THE SUGGESTIONS THAT FREEDMAN'S VIEWS HOLDS FOR STAKEHOLDER MANAGEMENT This approach believes that when an organisation overlooks their broader stakeholders it is both unwise and ethically unjustified. An organisation that follows this approach identifies and groups an organisation's constituencies (Coleman, T. 2013). According to Freeman's approach, organisations have a social responsibility towards their stakeholders. To do this, managers need to identify stakeholders' needs and expectations by conducting stakeholder research and developing strategies to meet these expectations and satisfy these needs (D, Saint, A, Tripathi. 2013). This approach states that for a business to reach its full potential, the business must consider the needs of broader stakeholders (Argenti, P. 2013). Managers will need to analyze how the business fits into the external environment in which it operates and how the business's activities affect the internal stakeholders as well as the external stakeholders (Mayor, D. 2015). Freeman suggests that businesses should complete a 'generic stakeholder map.' Before making important decisions, the manager needs to look at the stakeholders on the stakeholder map and analyze how this decision will impact these stakeholders (D, Saint, A, Tripathi. 2013). The stakeholder theory is closely tied to and supports the concept of corporate social responsibility (Argenti, P. 2013). A business that follows the stakeholder view will engage in corporate social responsibility to benefit its stakeholders and the business itself. The idea of CSR also states that
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