The shareholder theory and stakeholder theory are two competing perspectives on the role and responsibilities of a corporation. The shareholder theory, also known as the shareholder primacy model, holds that the primary purpose of a corporation is to maximize shareholder wealth. According to this perspective, the interests of shareholders should take precedence over all other stakeholders, including employees, customers, suppliers, and the community.
On the other hand, the stakeholder theory suggests that a corporation has a broader set of responsibilities beyond maximizing shareholder wealth. According to this perspective, a corporation has obligations to all of its stakeholders, including employees, customers, suppliers, the community, and the environment. The stakeholder theory argues that a corporation's actions should take into account the interests of all stakeholders and strive to create value for all of them, not just shareholders.
One of the main criticisms of the shareholder theory is that it can lead to a focus on short-term profits at the expense of other stakeholders. For example, a corporation may prioritize cost-cutting measures that benefit shareholders in the short term, but may harm employees or the community in the long run. In contrast, the stakeholder theory emphasizes the importance of considering the long-term impacts of corporate decisions on all stakeholders.
Another key difference between the shareholder theory and stakeholder theory is the role of the board of directors. Under the shareholder theory, the board of directors is primarily responsible for maximizing shareholder value. This can lead to a conflict of interest, as the board may be more focused on maximizing shareholder wealth rather than considering the interests of other stakeholders. In contrast, the stakeholder theory argues that the board of directors should consider the interests of all stakeholders when making decisions.
Overall, the shareholder theory and stakeholder theory represent two competing perspectives on the role and responsibilities of a corporation. While the shareholder theory emphasizes the importance of maximizing shareholder wealth, the stakeholder theory argues that a corporation has a broader set of responsibilities to all of its stakeholders. Ultimately, the best approach may be to find a balance between these two perspectives and consider the interests of both shareholders and other stakeholders when making corporate decisions.
