Milton Friedman said the firm is seen as the property of owners so the purpose of the firm is to maximize the owners' ROI. Management has a fiduciary duty to act in the owners best interest.
Stakeholder Theory of the Firm
R. Edward Freeman argues that corporations serve a broad public purpose: to create value for society (all stakeholders). Profit is important, but all stakeholders must be taken into consideration. Management has a fiduciary duty to act in the best interest of stakeholders.
Refers to individuals or groups that affect or are affected by actions of a firm
Interest, right or claim on the operations of the firm
Stakeholder who is engaged in economic transactions; primary stakeholders
Stakeholder who is not engaged in economic transactions; secondary stakeholder
An analytical process used by managers that identifies the relevant stakeholders in a particular situation and seeks to understand their interests, power and likely coalitions
The real ability or capacity of a stakeholder to use resources to make an event happen, secure a desired outcome, produce an effect of have an influence
Refers to the extent to which a stakeholder's actions are seen as proper, valid or appropriate by the broader society
Refers to the time sensitivity of a stakeholder's claim and to the degree where the claim demands immediate attention
Four Types of Stakeholder Power
Voting, economic, political, legal
Stockholders have this power. They have a legitimate right to cast a vote. Stockholders typically have voting power proportionate to the percentage of the company's stock they own.
The power which explains why suppliers can withhold supplies if a company fails to meets its contractual responsibilities, why customers may refuse to purchase a product if the company acts improperly, and why employees can strike.
Stakeholders use this power indirectly by urging government to use its powers by passing new laws or enacting regulations
Stakeholders have this power when they bring suit against a company for damages, based on harm caused by the firm
Any issue that is of mutual concern to an organization and one or more of its stakeholders
Mixture of people's opinions, attitudes, and beliefs about what constitutes reasonable business behavior
Discrepancy between what stakeholders expect and what business is actually doing