The Evolution Of The Corporation Essay

1055 words - 4 pages

The Evolution of the Corporation

The Evolution of the Corporation

In a capitalist society where the growth and power of corporations are ever evolving it is critical to determine the effects and consequences this evolution brings upon the business world. The Stockholder Theory maintains that managers should act merely as agents to the stockholder and only serve their interests-the maximization of profits (45). Milton Friedman's argument being, they are the owners of the business, and hence they should be entitled to all profits (45). Although this simple profit-motive concept may achieve the desired result, and address all of the interests of the stakeholders it lacks compassion that is so prevalent, and in my opinion superior, in the following theory.

In Edward Freeman's A Stakeholder Theory of the Modern Corporation he suggests a transformation of the corporate system by replacing the notion that managers have a duty to stockholders with the concept that managers bear a fiduciary relationship to stakeholders (56). In its narrow definition stakeholders refer to customers, suppliers, management, owners, employees and the local community- those that are vital to the survival and success of the corporation. This direct approach of focusing on the interests of all those that are vital to its survival embraces all of the elements that have evolved in our society as a result of the absence of direct concern or lack of morality for the stakeholders in the Stockholders Theory.

Over the years, the sole pursuit of managerial capitalism, the basis of the Stockholder Theory, in its unconstrained manner through deception and manipulation has resulted in the promulgation of laws to protect the interests of stakeholders which Edward Freeman so willingly embraces. Examples of this include the Equal Pay Act of 1963 and the Civil Rights Act of 1964 to constrain management from discrimination hiring practices, and the Clean Air Act to protect the interests and environment of local communities (57). If law is the public's agency for translating morality into explicit social guidelines and practices it clearly illustrates the lack of morality imposed upon society as a result of the Stockholders Theory.

According to John Stuart Mill most persons, and perhaps all, have a basic moral sensitivity to the needs of their fellow human beings (17). This was so prominently displayed when Southeast Asia was devastated by the recent Tsunami disaster that touched the hearts of both the public and corporate society. Hundreds of millions of dollars were donated by the corporate sector to provide those misfortunate people with aid. No doubt some of those corporations were displaying true social responsibility while others were merely acting the part in order to simulate this appearance. This, in my opinion, is the underlying difference in the two theories I am presently critiquing. Clearly Freeman's Stakeholder theory is superior in this...

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