Module Teaching Notes
We start this new unit with an overview of the shareholder and stakeholder models. These are more “tools
in the toolbox” that you may refer back to throughout the course, if you wish.
The central question for this unit is: what is the purpose of a corporation supposed to be? And, to
summarize the two key ways of answering this question:
The shareholder model presents the idea that corporations are supposed to make money for the
shareholders, no more and no less. They are not supposed to “be nice”. They are not supposed to “do
good” or “take care of people”. They are supposed to maximize the return for their owners/shareholders,
and that is the end it. Many businesses have followed, and continue to follow, this model.
If you like, you might spend some time featuring some specific quotes from Milton Friedman here. Most of
my students are familiar with him from other courses, and he does give some good, passionate sound bites.
Those who fail to follow the shareholder model engage in “pure, unadulterated socialism”, he said.
The stakeholder model holds out that business leaders are obligated to take many groups of stakeholders
into account when making decisions. The shareholders are one, but only one, of the stakeholders. Others
may include communities, employees, customers, and so on. Even if the shareholders receive a somewhat
smaller return on investment, it is sometimes appropriate to “spend a company's resources” on taking care
of stakeholders who are not owners.
As always, it is important to present the ideas without seeming to take a side. You will be with this material
for several modules, and you will not want large numbers of students merely “agreeing with you” and
reflecting what they perceive as your point of view.
I like to stop here and take a few comments on initial impressions of the two models, and which seems more
I then like to lecture for a bit on the Ford v. Dodge case. This is a terrific old lawsuit in which Henry Ford
himself lost tens of millions of dollars (adjusted for inflation) to the Dodge brothers and other major
shareholders. Ford and his board of directors gave millions of dollars to charities and worthy causes, and
the shareholders won the case because, in those days (this case happened in 1919), you couldn't do that.
Incorporation laws required corporate boards to follow the shareholder model.