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Stakeholder Vs Stockholder Theory Essay

1146 words - 5 pages

Larry Chapman
Business Ethics
Exam Two

The Stakeholder theory of a firm is made up into equal percentages on a pie chart, which is made up of Financials, Suppliers, Employees, Customers and Communities. The Stockholder theory of a firm is made up by a pyramid structure consisting of Labor, Management, CEO, Board and Stockholders. I believe the Stakeholder theory is less ethical than the stockholder theory in terms of Libertarianism and Egoism. Libertarianism view points are that there is no direct harm, not infringing on rights, not breaking the laws, government protection only, free market and charity. The Egoism viewpoint is to maximize long-term self-interest.
The Stakeholder ...view middle of the document...

This scenario also breaks the law in regards of breach of contract that everyone is equal, but as stated before they can not be equal because, of the financials and even if they were equal it would breach the contract of the creditors and shareholders by them not getting their required rate of return.
The Egoism Theory would believe the Stakeholder theory is less ethical than the Stockholder Theory because, it does not maximize long-term self-interest. To maximize long-term interest of the company you cannot have an equal pie chart philosophy due to, as stated before the financials. The last time I looked the long-term interest of a company is to create wealth for the shareholders and have the company run forever. The only way that can happen is to pay your creditors back, so that your company does not fail. However if you do this, you can say your company has a Stakeholder Theory, but for financials you have obligations and actually have a Stockholder Theory. So therefore it’s unethical to the communities and customers and less ethical than the Stockholder Theory.
The Stockholder Theory is more ethical than the Stakeholder theory due to the nature and philosophy of the structure. The main goal of a firm is to create wealth for the shareholders and creditors. For the firm to achieve this goal they must act as a team and this structure is built to create wealth and everyone is happy. The team starts out with the Stockholders that want their required return after their investments, but for them to have their returns they must have a very good board. The board people make a lot of money and they feel in power so they want to keep that up, but for them to keep their jobs they must create wealth for the creditors. One of the big decisions the board must make is to elect their CEO that will make their jobs easier. The CEO usually is the highest paid in the group and guides the company, so he must make the board very happy and for the board to be happy they must make the shareholders happy. For the CEO to have a great company and to keep his job he must have good management, which they all want to keep their jobs. So far everyone has the same common goal and for one to achieve their own goal they...

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