In yesterday's lecture we watched a video of Kevin O'Leary explaining that the main object of business is to make money and please the shareholder. When we watched this video a theory from a business ethics class that I have taken came to mind. This is the shareholder vs. stakeholder theory.
The shareholder theory was created by Milton Friedman and he explains that the main responsibility of a business is to increase its profits. Essentially it does not matter how or why, but that profits are created and capital is increased. This theory is now usually seen as the 'historic' way of doing business, however, as we see in the Kevin O'Leary interview, this is still the mindset of many successful business people.
The stakeholder theory, introduced by Edward Freeman, is the opposite; it maintains that a company owes responsibility to a number of different stakeholders. These include employees, managers, customers, suppliers and the business community itself. We see that many corporations today take this approach, by having large employee benefits, customer rewards, open information and many other attributes.
This video briefly explains the two different approaches, their benefits and downfalls.
Shareholder vs. Stakeholders
Which theory do you feel would allow a company to be most successful in the long-run, whether it is ethical or not?
Hi Claire! I really enjoyed your blog post - I also took Business Ethics, and these two dichotomous theories are a great representation of Kevin O'Leary's business outlook. From taking the class, I think that the stakeholder theory is definitely more beneficial as it obtains long-term benefits. Short-term the shareholder theory may be quickly rewarding and effective, yet would result in a lack of consideration for your shareholders. Due to the importance of shareholders within a company, especially today as businesses tend to be more privately owned, and autonomous (i.e entrepreneurial practices) I trust that investing your time, energy and consideration into a business' stakeholders will allow you to succeed long term, develop a strong team of support and should your business ever fail you will have a trusted business community. I believe that today, in contemporary culture of business, creating strong relationships with individuals who are investing labour capital into your company is the key to a successful and profitable company.
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