This paper will have a detailed discussion on the shareholder theory of Milton Friedman and the stakeholder theory of Edward Freeman. Friedman argued that “neo-classical economic theory suggests that the purpose of the organisations is to make profits in their accountability to themselves and their shareholders and that only by doing so can business contribute to wealth for itself and society at large”. On the other hand, the theory of stakeholder suggests that the managers of an organisation do not only have the duty towards the firm’s shareholders; rather towards the individuals and constituencies who contribute to the company’s wealth, capacity and activities. These individuals or constituencies can be the shareholders, employees, customers, local community and the suppliers.
Hence, the stakeholders which are described as those who are affected by theorganisation performance ,actions and duties and those actions includes employees, clients, local community and inverstors as well. The theory of stakeholders also suggests that it is the responsibilty of firm to make sure no rights of stakeholders are dishonoured and make desision in the interest of stakeholders which is also the purpose of stakeholder theory to make more profit and balancing it while considering its stakeholders (Freeman 2008, pp. 162-165). In the other words organisation must also operates in a more socially accountable approach by carrying out corporate social responsibility as CSR) activities.
In contrast , the shareholder theory organisations or organisation's decision-makers only have the responsibility to their shareholders by increasing the organisation profits and should only make the decisions to increase as much as possible for their firms’ profits and for thee benefit of their shareholders ( ). The paper will importantly examine the view of Milton Friedman against the stakeholder approach for organisation, and will discuss how the stakeholder approach affects the way the organisation operate.
Consequently, the model of stakeholder by Edward Freeman has broadly considered as the strongest theory regarding responsibilities of a company towards society where the company is located. Nevertheless,
Friedman pointed out that the profits has taken the firms in to the hand of bussiness intellectuals by which Friedman recommend that the financial system by which the organisation run its bussiness is in the restricted responsibility protection which maked the organisations to privatise their profits (Friedman 1970, pp. 177-184). Friedman also suggested that according to him the shareholder theory in terms of socially responsible can only increase the profit. But on the other hand sharehlder theory of Edward Freeman completely support the theory of shareholder towards its role to be socially responsible in the society and maximising the profits for the benefits of shareholders within the firms and society as well ( ).
According to Cosans (2009, pp. 391-399),...