Stakeholder Theory Comparison Essay Example
Stakeholder Theory Comparison Essay Example

Stakeholder Theory Comparison Essay Example

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  • Pages: 3 (756 words)
  • Published: May 9, 2017
  • Type: Essay
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According to stakeholder theory, the participation of every legitimate person or interest group in a firm's activities is aimed at obtaining the benefits that come from achieving the corporate goals and objectives. As a result, the priority given to all interest parties by the legitimate stakeholders is not obvious. The managerial perspective of the theory suggests that structures, practices, and attitudes that are important to all legitimate stakeholders should be addressed simultaneously. Some theorists, such as William Evan and Edward Freeman, have argued extensively about the theory and its logical implications.

According to their perspective, the payment of corporate stakeholder returns is not motivated solely by firm ownership. Instead, it is based on the essential and objective support that these stakeholders provide for the proper functioning of the company. Therefore, they contend that decisions and the overall goals

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of an enterprise should be collectively determined by all key stakeholders, who have varying roles in ensuring its success. These stakeholders encompass workers, banks, suppliers, and local residents where the enterprise is located.

These theorists argue that all key groups and stakeholders must equally contribute to the decisions made by the firm. The scope of key stakeholders encompasses all individuals and groups involved in the smooth functioning of the corporation. This is because every person or group within the community has a direct or indirect influence on its adequate functioning. William and Freeman's perspectives on this theory align well with capitalism, which lacks defining features in the economic system. By no means does it dictate exclusive ownership rights of the enterprise by the stakeholders. Instead, it recognizes these stakeholders as essential participants in the organization's functionality rather than stric

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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).

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