For some specialists in the field Friedman's shareholder theory holds water more, while for others, Freeman's stakeholder theory seems to be more suitable for modern times. John Hasnas has studied both theories and stated several interesting findings. For example, he stated that "the stockholder theory is not as obviously flawed as it is sometimes supposed to be and that several of the objections conventionally raised against it are misdirected" (Hasnas, 1998). Hasnas's opinion on Freeman's stakeholder theory is quite different, as he considers the arguments supporting this theory to be significantly flawed. Even more, Hasnas considers that the stakeholder theory benefits from a great deal of undeserved confidence.
However, Hasnas does not consider himself of being in favor of the shareholder theory instead. Furthermore, Hasnas advices the readers to focus on the characteristic common to both theories: the explicit or implicit recognition of the preeminent value of individual consent. As a conclusion, Hasnas considers that "an adequate normative theory of business ethics must capture the ethical obligations generated when an individual voluntarily enters the complex web of contractual agreements that constitutes a business" (Hasnas, 1998).
John Boatright's opinion on shareholders somewhat rebalances the situation between the shareholder theory, on the one hand, and the stakeholder theory, on the other hand. In Boatright's opinion, "there has been a steady erosion in shareholder power, largely as a result of the increasing separation of ownership and control and the rise of large institutional investors" (Boatright, 1994). As Boatright observed, recent trends reveal that there is significant tendency regarding the increase of shareholders' power and their influence in major corporate decisions.
Certain theorists in the economic field have agreed upon the fact that shareholder value maximization corresponds with firm value maximization, which leads to maximized...
Other theorists deny this assumption, considering that even if firm value maximization may lead to slight social welfare maximization, there is no proof that the same goes for shareholder value maximization (Joerg et al., 2007).
As one may conclude from the issues discussed above, there is no unanimous opinion regarding which theory would be best suited for today's practice. However, most of theorists and practitioners declare themselves in favor of Friedman's shareholder theory of management. Freeman's stakeholder theory of management also has a great deal of adepts. Others find flaws in arguments supporting both theories. Friedman's theory that states that the sole purpose of a corporation is to generate profits for its shareholders seems to have a strong argument in this statement, up to a point. In nowadays complex global economic environment is not enough to focus solely on profits. Corporations have the ability and the responsibility to play an important role in the social life of the communities in which they activate.
Reference List
Friedman, Milton (1970). The Social Responsibility of Business Is to Increase Its Profits. Stockholder Management vs. Stakeholder Management. New York Times Magazine. Retrieved February 4, 2008.
Freeman, Edward (1994). The Politics of Stakeholder Theory. Business Ethics Quarterly. Retrieved February 4, 2008.
Hasnas, John (1998). The Normative Theories of Business Ethics: A Guide for the Perplexed. Business Ethics Quarterly. Retrieved February 4, 2008.
Boatright, John (1994). Fiduciary Duties and the Shareholder Management Relation: Or, What's So Special about Shareholders? Business Ethics Quarterly. Retrieved February 4, 2008.
Joerg, P. et al. (2007). The purpose of the corporation: Shareholder-value maximization? University of Bern, Department of Finance Management. Retrieved February 4, 2008 at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=690044.
