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Shareholder Vs. Stakeholder Theory Research Paper

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Milton Friedman’s quote gets to the heart of the conflict between shareholder theory vs. stakeholder theory. Shareholder theory posits that a corporation’s sole responsibility is to maximize the return on investment (ROI) for shareholders. Stakeholder theory posits, on the other hand, that a company owes a duty to all stakeholders (not just shareholders)—members of the community, workers, consumers; in short, anyone who is part of or who is impacted in some way by the company. The question is: Do corporations exist only to serve the interests of shareholders or do they also have a responsibility to serve stakeholders as well? This paper will answer that question by looking at the nature and essence of business social responsibility from the standpoint of the four major sources of ethical values in business: Law, Culture, Philosophy, and Religion. It will show that in today’s business environment, stakeholder theory needs to be pursued instead of shareholder theory, and it will explain why starting with Friedman’s own words.

Without Deception or Fraud

Friedman believed that if a corporation is doing right by shareholders, the rest will take care of itself. The problem is that times have changed since Friedman made that statement. When Friedman argued for shareholder theory, corporate share buybacks were still illegal. It was not until 1982 that the rule regarding public companies buying back their own shares on the public market was changed and the activity was permitted by the Securities and Exchange Commission (SEC) (Reda, 2018). That is significant because Friedman qualified his statement with the words “without deception or fraud.” The reason corporate share buybacks were illegal prior to 1982 was precisely because it was viewed as a form of market manipulation—corporations propping up the share price for shareholders and not allowing true price discovery to be allowed by the market (Reda, 2018).

Now that companies can purchase their own shares on the marketplace, one can see what the effect has been: currently the stock market is in the longest bull run in equities history (Chen, 2019). During that time, P/E ratios have soared far higher than their historic norms. Many zombie corporations in the Fortune 500 are borrowing at extremely low (historically low) interest rates to buy back their own shares and thus inflate shareholder value. Many executives sign off on share buybacks instead of putting the money to good use, as in research and development, because they themselves have boatloads of shares that they want to sell and they know that the smart money has been leaving the market for a while now (Szala, 2019). If the executives, who are often compensated with company shares, want to rake in the millions of dollars that they are potentially sitting on in terms of shares and stock options, they have to authorize corporate share buybacks so that they too can unload their shares and make money. They are shareholders, too, after all, and maximizing shareholder value benefits them as well. So long as the share price stays up, they are happy—as are all investors. But what is the outlook like for the company down the road? Buying at inflated levels means that when the market finally does turn and prices fall, billions will be wiped out in an instant. The money that could have been re-invested in the company, that could have been spent on innovation, or that could have been spent on sustainability—i.e., stakeholders, members of the community, a program that would benefit workers, community members or the environment—was instead spent on propping up the share price at a time when no one else was interested in buying.

It is the essence of market manipulation—only now it is legal. The SEC decided in the 1980s that what had once been banned should now be allowed. While corporate share buybacks had been banned when Friedman made his comments, his comments made more sense. Executives knew back then that in order to maximize shareholder value they had to deliver as leaders of the company and grow the company through investment in the company, through research and development, through innovation, and through focusing on long-term sustainability. Those were the keys to maximizing shareholder value because investors looked for value and they saw value in terms of a company doing the right things to be a successful business—satisfying the public with new ideas.

Sustainability is not a new concept. It is simply a return to an old concept. In the past, business leaders knew that to survive, to profit, to have a meaningful future not just for themselves but also for workers and for communities, they had to engage in sustainable practices. They could not abuse or misuse resources, including workers. They could not take tomorrow for granted. They had to earn the respect and trust of stakeholders just to operate. If they did not, they would be run out of business, and people in government would help to see it happen. People had principles, courage, and strength to do what was right. They had virtue, and they knew what virtue was. They practiced a system of virtue ethics back when having an ethical framework meant something more than simply justifying whatever choices one wanted to make regardless of how it impacted others. Today, businesses are not held accountable, and the 2008 crisis showed as much. Their cronies are all in positions of power in the government, looking out for them rather than for any type of sustainable practice or for stakeholders.


When the SEC changed the law regarding buybacks it changed the nature of the business and its duties. Businesses no longer had to be profitable or successful or even have a long-term plan to succeed—now all they had to do was have access to cheap credit (which they all have now thanks to the Federal Reserve keeping the Fed Funds rate so low) and they could support their share price no matter the valuation. Companies from Apple to American Airlines are…

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…out his cousin and by extension himself—because Solar City, Tesla and SpaceX are little more than Ponzi schemes feeding one another. All of this is even now coming out in the public as a result of shareholder litigation. The fact is that Musk is posing as the Messiah of sustainability in order to dupe shareholders. He needs them to keep the Ponzi going.

As the Christian ethic shows, charity is what sustains communities. It is not greed or profits, or unrealistic growth expectations, or fantasies about saving the environment by way of electric vehicles. Cars do not even pollute the environment very much: what does is agriculture—fertilizer, cows, and pesticides. The bogus notion of cars being the death of the environment and the cause of climate change has been sold to the public in order to promote the EV market and the carbon credits market. Tesla makes money be selling carbon credits to other companies that need them because they pollute so much. That is Tesla’s main money-making operation. Otherwise, it is basically a money-losing company.

Sustainability can happen, and companies can help to make it happen. But they have to do right by others in order to bring about a culture of sustainability. That means ending the rapine, ending the destruction, ending the greed. Charity—looking out for one’s neighbor out of a desire to please God, Who looked out for all of mankind when He hung on a cross—that is what is needed. Sir James Goldsmith knew it (Rose, 1994). Today’s executives, however, see only the fact that the SEC has legalized market manipulation and they see the fortune to be made if only they simply authorize more share buybacks. Would Friedman approve of what goes on today? It is highly doubtful, for he understood precisely the problems of what happens when corporations stop acting ethically. They become destroyers rather than supporters of communities. When they engage in fraud and deception they undermine their own sustainability, which is exactly what one is likely to see in the long run with companies like Tesla—as has been seen in the past with companies like Enron and Worldcom. Sustainability is not just about the environment. It is about culture and having the courage to speak truthfully and to act honestly, to create a community that honors loyalty and commitment. Companies need to show that if they truly want to promote sustainability.


Companies have a duty to their stakeholders. That means they have a duty to look out for communities, to sponsor programs for the promotion of education. It is called strategic philanthropy: offer courses that train members of the community to do the jobs companies need instead of sending them oversees. It means they have a duty to protect the environment and not use toxic chemicals and pesticides that cause cancer; it means not polluting the rivers and streams and air; it means having a care for real sustainability that positively impacts stakeholders—not just sustainability of a bull…

Sample Source(s) Used


Augustine. (n.d.). Commentaries on Sermon on the Mount.

Chen, J. (2019). Market Milestones as the Bull Market Turns 10. Retrieved from

Egan, M. (2018). Tax cut triggers $437 billion explosion of stock buybacks. Retrieved from

Henrich, S. (2019). Unholy alliance. Retrieved from

Laux, C., & Leuz, C. (2010). Did fair-value accounting contribute to the financial crisis?. Journal of economic perspectives, 24(1), 93-118.

Light, L. (2019). More than Half of All Stock Buybacks are Now Financed by Debt. Here’s Why That’s a Problem. Retrieved from

Mullen, C. (2019). People want to buy 'local' food, but they're not sure what it means. Retrieved from

Putka, G. (2019). Insiders are selling. Retrieved from

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