Question

Briefly describe shareholder theory, stakeholder theory, and stakeholder salience.

Compare the three concepts. In what ways are they similar? In what ways are they different?

Which of the three concepts do you think has the most potential to positively impact business strategy? How? Why?

Which of the three concepts do you think has the most potential to negatively impact business strategy? How? Why?

Answer 1

The shareholder theory states that it is the only social responsibility of a business to generate profit for their shareholder no matter the values or the consequences of their actions on the business and the environment they are a part of.

While the stakeholder theory states that it is the fiduciary duty of the manager to cater to the needs of the stakeholders, amongst which is also the shareholders but does not include the competition or the government.

Stakeholder salience model categorizes the stakeholders based on their level of importance to the organization and this is how the tasks performed are centred ion mind based on these divisions of importance.

From the above definitions we can clearly see that while the shareholder theory does not take into account any other entity than the shareholders, stakeholder take into account the stakeholders, some of which can also be the shareholders and at the same time the salience model breaks down the importance of the different stakeholders based on their importance to the organization and therefore, successfully create a division of views, needs and necessarily work accordingly to this division.

Out of the three, in my opinion, the since the shareholder theory is a one-sided view and does not take into account other necessary factors for the businesses, we can easily say that the stakeholder theory and not the salience theory is the one best suited to take into account the most number of factors and therefore, can be the best in certain scenarios. It should also be seen that while shareholder theory can be considered as a destructive entity, stakeholder salience, on the other hand, can be a constructive theory.

We can say that the shareholder theory which has a primitive view the requirements and the duties of the business is the most negative one in this case. Not only does it not take into account the fiduciary duty to the stakeholders, in essence, it does not take into account the impact and the practices which it operates on and how it affects their social responsibilities.