Stakeholder Theory Comparison Essay Example

corporate owners.

This suggests that the optimal ownership structure for a corporation is for management to have control, at the expense of stakeholders. The fundamental idea of the William and Freeman model is to democratize and politicize the corporate structure, allowing individuals to have a personal economic stake. This creates corporate "constituencies," giving individuals specific roles and purposes within the organization. Stakeholders are entitled to a share of the corporate surplus once all operational expenses have been paid.

According to this theory, the goal and profits of the business is to provide a social redress and promotion of the society’s lifestyle through governing an improved social responsibility. However, Milton Friedman emerged to discredit the theoretical perspective of William and Freeman. According to Friedman, the social responsibilities that exist in an enterprise operating within the free enterprise economic system are prose and impractical. This refers to businessmen prioritizing the society's social responsibilities and philosophy over profit-making motives. This signifies that the traditional objective of the enterprise is to promote the "social" goals of the society as enterprises have a "social conscience" that obliges them to reduce discrimination, increase employment, minimize pollution, and contribute to general societal improvement. In contrast, according to Friedman, business motives are driven by the desire for profit rather than promoting social responsibilities.

According to him, the so-called basic social responsibilities attributed to business lack a strong logical framework and are instead based on vague analysis. In his view, it is not the business itself that has social responsibilities, but rather the individuals within the business environment who exhibit this inclination. He believes that a business enterprise is created as a fictional entity with its own

distinct fictional obligations. Therefore, these fictional obligations do not equate to genuine social responsibilities, but rather artificial ones that are driven by the goal of profitability.

In the free enterprise system, corporate executives act as employers and strive to maximize corporate profits within the ethical and legal boundaries of society. This aligns with the notion that pursuing business profit is acceptable as long as it adheres to legal structures (Milton, 1970, 1). However, Edward Freeman proposes a more comprehensive stakeholder theory, emphasizing the importance of valuing and considering the interests of various corporate stakeholders for effective corporate functioning.

The argument in general is based on a practical analysis that grants legitimacy to all participants. According to Milton Friedman, the business and its operations should not solely focus on profits, but rather consider the various roles played by different stakeholders. The success of a company can be measured by how well key players such as workers, shareholders, suppliers, legal framework, financial institutions, and competitors interact for smooth business functioning. Freeman acknowledges the significance of each stakeholder's role in today's competitive business environment. Thus, his theoretical framework supports corporate success when all stakeholders effectively fulfill their responsibilities.

(Norman, 2000, 2).