Question

Please give me some idea blog entry about 3 paragraphs addressing the following question:

Stakeholder theory and shareholder (ownership) theory are important concepts that explain the obligations and purpose of a business. Which of these theories is most valid in your opinion? Explain why and provide an example to support your argument. Do not spend time defining each theory. Spend your time analyzing, comparing and illustrating the concepts

Answer 1

There are two vastly different views when it comes to who and what a business is responsible for. These views are that of stakeholders and shareholders. These different viewpoints and the implications that they hold for stakeholder management as well as investor relations will be discussed in detail in this. This discussion aims to argue that in the modern business world stakeholders viewpoint is most beneficial to contemporary businesses. The challenges and changes that organisations face today in terms of investor relations will also be explored. This discussion will also aim to prove that social resposibility in business does benefit society and is not just a money making tool that business use.

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 resouces 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 competiotion 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 responsibilty of maximizing profits for shareholders.

In a company that follows Friedman's view, investor relations, is one of tor 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. The shareholders are the only important constituencies of an organisation and the organisation has a binding feduciary duty' to put the needs of investors first and make sure that investors are kept informed and happy, making investor relations very important. In this view, investor relation professinals 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.

Edward Freeman introduced his stakeholder theory in his book, Strategic management: A stakeholder approach. Freeman's viewpoint challenges that of Fredman's discusse above. Freeman states that the organization needs to consider and has a responsibility towards all stakeholders, not only shareholders. Stakeholders are all those piople who are affected by or who affect the organization.

Investors today are increasingly investing their money in socially responsible business. In fact, between 10% and 12% of money invested in the USA can be regarded as socially responsibe investing. Two thirds of Americans state that an organisation's level of social responsibility is a determining factor when looking to invest their money.

Socially responsible businesses do not engage in CSR only to better their profits and their bottom line but rather also to give back and improve the community in which they operate. Doing this can require the business to invest a lot of money in sustainable project to better the lives of the community which thaey are not guaranteed to make a profit on. Being a business that engages in social reposnsibility can provide various benefits to society and the business itself such as attracting and retaining new customers and attracting skilled employees and adding value to the society.

For example, Walmart is dedicated to sustainability by reducing their waste, which, in turn, reduces their costs. Not only does this ensure a safer and healthier environment for society but also enables Walmart to charge lower prices, supporting their mission of helping customers to 'save money, , live better."

So from this essay it can be conclude that stakeholder theory in business is more important than the shareholders theory.