This is a lecture I wrote for a course on business ethics.
This week’s material and lecture have to do with the difference between two broad approaches to corporate governance that are dominant in contemporary management philosophies and theories of business ethics. There is on the one hand what we call shareholder primacy, and on the other hand stakeholder theory. The difference between these two models is what Rönnegard and Smith refer to as ‘the basic debate’ in business ethics, and it has to do with whose interests are held to be of primary significance when making management decisions as a member of a corporation.
The shareholder primacy norm asserts that the first—and, in its strong form, perhaps the only—set of interests that need to be considered by managers when considering different courses of action are the corporate shareholders: that is, people who have invested money in the firm, without whom obviously the corporation would not exist at all, and who presumably only invested their money in the firm with a view toward gaining a positive return on investment. As a result, shareholder primacy is generally interpreted so as to mean that managers should seek to maximize shareholder value or generate the greatest profits possible. Deviating from this protocol means failing to meet one’s responsibilities toward the shareholders whose investments make your job possible in the first place.
By contrast, the stakeholder model asserts that there are other sets of interests that a corporate manager must take into account, beyond simply those of the shareholders or investors. Put simply, other groups of people have a stake in how any given firm is run, and proponents of stakeholder theory argue that it is unethical to disregard their interests just because it may be more profitable for shareholders to do so.
Continue reading “Shareholders and Stakeholders”
gil morejón 