Comparative Analysis Of Shareholders And Stakeholders
This essay will be an analysis of the shareholder perspective set against the stakeholder one with the aim of reaching a critical understanding of the purpose of a corporation. I will also be providing examples drawn from the pharmaceutical and cosmetic industry to support this analysis.
On the one hand, the shareholder perspective is very prominent and is based on the belief that a corporation’s social responsibility is that of increasing profit. Indeed, according to Milton Friedman “The Social Responsibility of Business is to increase its profit”, a concept forming an integral part of most introductory courses in business ethics. The view that Friedman articulates is familiar to many business people and students, that being the fact that the sole responsibility of a company is to increase its shareholders wealth. Friedman's doctrine was wildly popular because as long as the corporation made profits, it seemed to absolve them from difficult moral decisions and guard them against public criticism. The shareholder's view is that the objective of the corporation is to achieve the shareholder's defined ends, ensuring that those ends are legitimate and generally not deceptive. In fact, those ends are almost always aimed at maximizing the corporation's profits, so much so that shareholder theory is characterized by maximizing corporate profits. A business’ profitability promotes an investmentment-friendly environment that, in turn, fosters capitalism and free-market enterprise growth. Hence, Friedman clarified that a company's productivity and prosperity would ultimately benefit society. A representative example of the shareholder theory is Turing Pharmaceuticals ccmpany whose CEO was Martin Shkreli. The company bought rights to a drug Daraprin in USA and increased its prices by 5000%. According to Shkreli’s statement, he was merely fulfilling an obligation to his shareholders. Martin Shkreli was arrested for the fraud on securities fraud charges. Companies need to make these critical decisions so that the public's emotions can be managed. There, the industry's ethical dilemma was a financial fiasco created by Martin Shkreli to raise shareholder returns. The critical business condition was that it exposed the unethical practises of using one company's funds to pay off other debts. This incident spread awareness among the public who started sharing their views on social media. The business reached a decision n which Martin was arrested and the prices for the drug dropped by the business.
Given that shareholders are the owners of the corporation, the corporation has legal responsibilities and the management have a fiduciary duty to act in the interest of the shareholders. Moreover, if a business uses the profits for any social purpose beyond the interest of the shareholders, it could be viewed as an abuse of power by the managers. On the same line of thought is Friedman who claimed that addressing social issues is the duty of the government and other non-profit organizations and not that of businesses. Therefore, according to shareholders, businesses have sole responsibility for their shareholders but they also have to ensure that they are consistent with legal standards.
On the other hand, the stakeholder perspective is equally significant. According to Freeman’s view, every action taken by the company impacts the stakeholders directly. To provide a helpful definition, a stakeholder is any entity or person that may influence or be impacted by the achievement of the business. A stakeholder can mean consumers, owners, creditors, suppliers, essentially anyone with an interest in the business. In the absence of support from these groups, the business would cease to exist. The philosophy of stakeholders encourages a realistic, efficient, and ethical method of managing corporations in a highly complex and volatile world. As such, it advocates for the treatment of all stakeholders with fairness, honesty, and even generosity. In addition, the stakeholder theory suggests that a kind of synergy is created by treating all stakeholders well. In other words, the way in which an organisation treats its consumers will in turn determine the attitudes and behaviour of the employees of the company. Finally, this will influence the way in which the company will act towards the population. Moreover, at the core of the stakeholder’s theory lies the concern of creating more interest. However, managers appear to have different perspectives on who should share the value created. Narrow value creation models suggest that a small number of stakeholders, such as owners or consumers, should be the priority. Recognizing that stakeholders are not generic in their preferences and that those priorities may not be in accordance with firm interests, further work is necessary to explore shared and divergent interests and their impact on stakeholder relationships. The Body Shop is a particularly useful case study which provides insight into the stakeholder model. The producer and distributor of organic cosmetics have been characterized by its founder's advocacy. The organization pursued a mission for social activism, creating policies of conservation, declining to check its goods on livestock and funding various programs of social change. When questioning the company's commitment to these goals, the management of the Body Shop provided detailed reports to its shareholders, suppliers, customers, and other stakeholders to ensure that the company's behaviour fulfilled its brand image promise. Johnson & Johnson, Merck, Facebook, and eBay are other successful companies that use stakeholder approaches. The CSR of any organization is to carry out its activities in an ethical way, which makes it accountable to the stakeholders. According to stakeholder theory, an alternative means of decision-making in business is provided, one in which ethical and moral principles form key considerations. This means that the interests of the many different stakeholders in the company should be served as opposed to only those of the shareholders. Business’ approach to corporate responsibility, with stakeholder theory forming their basis, should thus also share this ethical approach. Acting in an ethical and trustworthy manner, and ensuring greater fairness in the consideration of different stakeholders, may allow the organization to form relationships based on trust which will then lead to long-term profit.
Corporate Social Responsibility (CSR) is a stakeholder-oriented philosophy which incorporates a corporation's mutual obligations in relation to problems that range beyond the limits of the corporation. In addition, it is informed by an organization's awareness and appreciation of its moral responsibilities with regards to the impacts of its actions and processes on society. At the moment, the term corporate social responsibility is in vogue, but it is vague as a concept and can thus be taken to mean several different things to different people. Topal and Crowther, for instance, are concerned with bioengineering and its impact on ecosystems and hence on the planet's existence. On the one hand, Mraovich is worried about the networked society's implications whereas Rayman-Bacchus is more concerned with legitimacy in corporate behaviour and the persistent conflict between economic wealth and social well-being and its validity. On the other hand, Haw points out that socially responsible conduct is based on individual actions, and we cannot anticipate corporate responsible behaviour until we act responsibly as individuals.
The most obvious and significant link between the stakeholder and CSR theory is that both emphasise the importance of integrating social values in business operations. McGuire’s belief is that “The idea of social responsibilities supposes that the corporation has not only economic and legal obligations but also certain responsibilities to society which extend beyond these obligations'.
Within business disciplines, the difference between stakeholder theory and CSR is significant given the substantial number of business academics and practitioners who continue to reject stakeholder theory. This is because of their belief that it forms a key management theory due to the fact that they believe it is about CSR. Therefore, companies can implement CSR given that they have the ability to and only as long as they have the motivation to. In contrast to what is often believed, it is not solely about the way in which the stakeholder precepts help businesses to create more value, even value that is measured in financial terms.
As far as the relationship between the shareholder and CSR is concerned, Friedman argues that shareholders are never obligated to direct management in order to exercise social responsibility. Nonetheless, the more recent comments made by Friedman on this topic act as clear evidence of this statement. His argument is based on the idea that pursuing social responsibility within the business sense is inherently misguided and imprudent, because such companies would contend with each other.
In conclusion, in the light of the two sides provided in this essay, the statement made by pharmachief Nirman Muley suggests an unethical approach towards pricing and the effect on the consumers. Overall, the shareholder perspective is somewhat more closely related to Freeman’s value. However, looking at it from both the shareholder and stakeholder perspective, the fact that it is illegal due to unfair trade practice, creates moral considerations that deem this approach unacceptable.
