1 Stakeholder v. Shareholder Theory Kerry McGuire
Stakeholder versus Shareholder Theory
Kerry McGuire
BUS 351
Section 505
Jeffery English
2 Stakeholder v. Shareholder Theory Kerry McGuire
Corporate social responsibility has become one of the latest controversies in the business
society in the last couple decades. Corporate social responsibility, or CSR, can be dated back to
the 1970’s where society first started to argue that those companies who pollute should pay a fine
for their actions. (7). CSR has still been a debated subject up to present day where it is still
growing to be completely complex. (8). The two simple different sides of the debate are
fundamentally based on the stakeholder theory and shareholder theory. The stakeholder theory
supports corporations and business providing ethics and maintenance for the benefit of society.
On the other hand, advocates of the shareholder theory consider that businesses and corporations
should simply obey the law and maximize profits along with the shareholder wealth. (10).This
debate of people who claim the only responsibility of a business is to increase their profit verses
businesses have responsibility for the greater good of society is a very important and not
overlooked dispute.
Corporate social responsibility refers to a business that involves going out of its way to
participate in initiatives which benefit civilization. This may include charity work, reducing
emissions, and creating a more sustainable social and natural environment. As people of the
world’s awareness about social issues continue to grow, it makes an impact of how where these
buyers will take their business. This is argued how CSR makes a vital investment opportunity to
business’s futures, and is essential to long term success. (7)
This developing idea of CSR hasn’t always been considered “essential” to most
businesses. This is a new concept to the business world and previously had been rejected by most
business leaders for decades. (4) “Corporate social responsibility has been transformed from an
irrelevant and often frowned-upon idea to one of the most orthodox and widely accepted
3 Stakeholder v. Shareholder Theory Kerry McGuire
concepts in the business world during the last twenty years of so” (8). The biggest and most well-
known lawsuit which arguably started off the stakeholder/ shareholder theory was the Dodge v.
Ford Motor company case. In 1919, a case came up which concerned the proper role of business.
Ford, as the CEO and major shareholder of his company, announced a plan to take his profits and
invest them into more employees and factories, rather than paying out special dividends to
shareholders. This would also result in making his cars affordable to more people and increasing
his profits all around to go back into the business itself. Minority shareholders, most importantly
Dodge, sued Ford’s strategy. Dodge argued that the purpose of companies should be to maximize
shareholder’s profits, not to help the community by making more affordable cars. Dodge won the
trial, and Ford was ordered to give out a big dividend to the shareholders. Ford appealed,
although it was affirmed again. (3) The issue that makes this case so relevant is, can a
