The stockholder and stakeholder theories are two popular frameworks used to examine the purpose of business and its ethical obligations. With reference to the quote above, both theories seem rational and enjoy strong support. However, a common failing of both is typically how humans interpret and implement the theories in contemporary business environments. For instance, Enron was so focused on the raising the price of their stock that they “cooked the books to produce fake profits”1. This paper will provide a description of each theory and, analyze ethical justifications and major objections to each theory. The ethical justifications will be based on pertinent examples - policies and actions, of businesses such as Wal-Mart. Based on this analysis, the paper will argue that the stockholder theory is more justified and maximally supported by ethical theory justification. An important point to note is that the two theories are extreme endpoints on a continuum of theories. The author of this paper will favor the stockholder theory with particular leaning towards the theory of moral minimums.
The stockholder theory is the classical view of the purpose of business, and candidly states that business exists to serve the interests of the stockholder by increasing profits from their investment. Per the stockholder theory, practitioners of the theory enjoy the moral “high ground’ as long as their business does not resort to coercion or fraud. Nobel-prize winning economist, Milton Friedman, takes the view that stockholders are owners of the business and are entitled to its profits while managers are agents of the stockholders, and do not have any right to donate money to charity. This viewpoint is embodied in the legal opinion “Dodge v. Ford Motor Company”, in which the court ruled that the benefits of higher salaries for employees and lower auto prices for consumers could not take priority over stockholder interests. The stock chart below illustrates how Wal-Mart, one of the companies seen as being stockholder focused, has benefited its stockholders immensely over the last three decades.
Ethical theories provide adequate support for the stockholder theory as detailed below.
Entitlement theory maintains that if someone acquires resources by just means they are entitled to those resources. Stockholders who acquire ownership of a business by investing in it are therefore the owners of the business and entitled to its profits. The entitlement theory also states that benefiting other stakeholders at the expense of stockholder dividends is akin to stealing. Year after year, it has been quoted that “Wal-Mart pays low wages and appears to aggressively seek to keep wages down”2. In this respect, Wal-Mart’s policy on employee wages seems to indicate that they respect the stockholder rights over those of their employees.
Utilitarianism theory holds the view that profit maximization directly or indirectly maximizes benefits for the greatest number of people....