Stakeholder Theory Essay Example | Topics and Well Written Essays - 500 words

Stakeholder Theory - Essay ExampleStakeholders include shareholders, employees, suppliers, customers, and the communities in which the firm operates-a collection that Freeman terms the big five. The very purpose of the firm, according to this view, is to answer and coordinate the interests of its various stakeholders. It is the moral obligation of the firms managers to strike an appropriate balance among the five interests in directing the activities of the firm.This understanding of the firms purpose and its managements obligations diverges sharply from the understanding modern in the shareholder theory of the firm. According to shareholder theorists such as Nobel laureate economist Milton Friedman, managers ought to serve the interests of the firms owners, the shareholders. Social obligations of the firm are limited to qualification good on contracts, obeying the right, and adhering to ordinary moral expectations. In short, obligations to nonshareholders stand as side constrain ts on the pursuit of shareholder interests. This is the view that informs American corporate law and that Friedman defends in his 1970 New York Times Magazine essay, The Social Responsibility of Business Is to Increase Its Profits. (Thomas. J. Donaldson, 1994)Stakeholder theory seeks to overthrow the shareholder orientation of the firm.