Lecture 2: Shareholder vs. Stakeholder approach

Question 1

What type of responsibility are there?

Answer 1

1. Causal Responsibility
2. Role Responsibility
3. Moral Responsibility
4. Remedial Responsiblity
5. Legal Responsibility (Liability)
   a. strict liability

Question 2

Which roles are there in business?

Answer 2

1. Economic actors
2. Company leaders
3. Community leaders

Question 3

What is the core idea of the stakeholder view?

Answer 3

It is the manager’s responsibility to balance the rights and interests of ALL stakeholders (1984, R. Edward Freeman’s)

Question 3

What is Milton Friedman’s position regarding the shareholder approach?

Answer 3

The responsibility of managers is to conduct business in accordance with the shareholders desires.

Question 4

What are Friedman’s arguments regarding his position on the shareholder approach?

Answer 4

1. If you sign a contract you should respect it
2. Managers voluntarily sign a contract saying they will serve the interests of the shareholders
3. Therefore: managers should serve the interst of shareholderds
4. Often the interest of shareholders is maximizing profits.
5. Therefore, often the responsibility of managers is to maximize profit.

Question 5

What are background arguments for the shareholder approach?

Answer 5

1. Property rights should be respected
2. If you own something you have the right to decide what to do with it
3. Shareholders own the firm
4. Therefore, shareholders have the right to decide what to do with their firm

Question 6

What are constraints for the shareholder approach?

Answer 6

1. Property rights are not absolute
2. The law is a constraint
3. Managers cannot and should not act instead of governments

Question 7

What is the ethical stakeholder view of Freeman (2014)?

Answer 7

Ethical stakeholder view indicates that a business is a deeply human institution, but its purpose is not to make as much money as possible. The purpose is something else. We need to put purpose back into capitalism because business is primarily about purpose and creating value for stakeholders – money and profits follow.

Question 7

What is the second stakeholder view?

Answer 7

Managers have duties to all stakeholders beyond what the law requires. When interests of stakeholders conflict, the manager should act in a way that takes the interests of all stakeholders in account equally.

Question 8

What are the arguments for the second stakeholder view?

Answer 8

1. Shareholders have property rights, but other stakeholders also have rights
2. Everyone’s rights should be respected equally
3. If the law fails to protect people’s rights, others should
4. Therefore, when the law fails, managers should intervene and respect stakeholder’s rights.

Question 9

What is the strategic stakeholder view?

Answer 9

Acting in accordance with stakeholders interests is good for business

Question 10

What are the arguments for the strategic stakeholder view?

Answer 10

1. Managers should act in the interest of shareholders (maximize profit)
2. Devoting resources and attention to all stakeholders tends to be profitable
3. Therefore, managers should devote resources and attention to all stakeholders.

Question 11

What is a moral dilemma?

Answer 11

A moral dilemma occurs when either choice seems to violate a duty to others