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Chapter Two: Two Extreme Views: Managing for
Shareholders or Stakeholders?
Learning Objectives for Chapter Two
2.
4. Describe the stakeholder theory.
5. Analyze the strengths and weaknesses of shareholder and stakeholder theories.
SUMMARY: Chapter Two discusses whether business managers are bound by the
shareholder value and the shareholder primacy view are introduced, and the stakeholder
theory is described. The strengths and weaknesses of each view are analyzed.
Introduction
Milton Friedman (Shareholder Value)
o Businesses only social responsibility is to increase profits as much as
possible without engaging in deception or fraud.
Stakeholder Theory
o Businesses bear moral responsibility, not just to shareholders, but to other
The Social Responsibility of Business Is to Increase Its Profits
Shareholder Primacy View: Because they work for shareholders, managers
must do whatever shareholders want. This view is based on three concepts:
o Community understanding of social roles (the manager role, not the
Medicine for the People
of why
pure shareholder primacy is too limited. Merck developed the drug at great company
expense for poor Africans who Merck knew would be unable to pay for the drug.
The stakeholder theory is a family of theories, some of which are contradictory,
asserted most prominently by R. Edward Freeman.
Stakeholder Theory: companies should be managed by balancing the
interests of all stakeholders.
o