Stakeholder vs. shareholder theory of the ethics of corporate management
by Tibor R. Machan
International Journal of Economics and Business Research (IJEBR), Vol. 1, No. 1, 2009

Abstract: Two theories dominate business ethics – shareholder and stakeholder. By the former, shareholders hire managers to manage the firm to make it prosper. By the latter, corporate managers are morally responsible to advance the well-being of all who may be affected. Another version of this dispute involves three theories – Milton Friedman's, Ralph Nader's and that of Miller-Ahrens-Machan. Friedman advanced the exclusivist position – managers should focus solely on the bottom line, period (within the rules of the game). Otherwise, they get involved in matters that should be dealt by the public authorities (what public projects to support, etc.). Nader holds that since corporations were originally created by government (the king or royal court), they are arms of public policy which now means economic democracy. Miller-Ahrens-Machan argue that the primary obligation of managers is to make the firm profitable. There can then be other matters with which managers should be concerned. This is the view that profit should dominate but not be the exclusive concern. Depending on which of these views is right, different policies follow for various more particular issues, such as insider trading, hostile takeovers, outsourcing and so forth. In this article, I will argue that the shareholder is superior to the stakeholder theory.

Online publication date: Mon, 26-Jan-2009

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