Last Updated 10 Aug 2020

Stakeholders vs. Shareholders

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The overarching business practices of large, publicly traded, companies are typically divided into two categories: shareholder- or stakeholder-driven. The US model for business has been overwhelmingly shareholder-driven for the last 15 years where most CEOs believe that their mission is to maximize shareholder value.

In other countries, suchas Japan and Germany, many companiesare managed using stakeholder-centered business practices (Inamori, 1997; Matsushita,1994; Nikkei, 2001a, b; Wessel, 2001). The success of the US economy in the late 1990s has propelled shareholders to pressure senior management for higher returns using US-style business practices (Taylor, 1999; Dvorak et al. , 2000; Shirouzu etal. , 2000; Shirouzu, 2000; Zaun, 2000; Wessel,2001).

Senior managers that are strongly influenced by shareholders, or otherwise adhere to a purely economic view of business, must make tradeoffs between other key stakeholders such as: employees, suppliers, customers, governments, or labor unions optimizing business performance along a single dimension, with principal accountability to only one stakeholder, suggests that success is best achieved by dividing, rather than leveraging, key stakeholders.

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Importantly, local optimization diminishes senior management's ability to develop an accurate view of reality. Having an accurate view of reality would result in the spontaneous and universal characterization of business as a socio socioeconomic activity. The true purpose of business would be clear and its course sustained over time with appropriate maintenance. But instead, witness theprevalence of business practices and metrics that distort reality or are divisive. Read about FedEx Stakeholders

Philosophical arguments are typically used to explore the validity of shareholder versus stakeholder views of business. While intellectually challenging, philosophical arguments may not be sufficient to persuade senior managers to change their behaviors. Further, the shareholder versus stakeholder debate is rooted in subjective thought, with concomitant biases and stereotypes. This results in artificial barriers that ensure superficial treatment of an issue that is of great importance to all people that work for a living.

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