According to the theory, which was first introduced by Milton Friedman in the 1960s, a corporation is primarily responsible to its stockholders due to the cyclical nature of business hierarchy. Having already discussed the pros and cons of each theory, it is now important to analyse the debate arising to be able to determine which of the two will enable better corporate governance. Stockholder theory, also known as shareholder theory, says that a corporation’s managers have a duty to maximize shareholder returns. Directors who communicate with stakeholders are encouraged to take care of the interests of stakeholders. Although shareholder primacy may be favored by most, there are many limitations and disadvantages to a shareholder-centric approach of corporations. The core assumptions and propositions of resource-based theory provide a strong foundation for extending stakeholder theory as a theory of competitive advantage. Shareholders. No problem here - despite stakeholder theory being positioned as the antithesis of shareholder theory, the reality is that shareholders (or yourself if you own the business) will always be one of the biggest stakeholders you are responsible to. Advantages And Disadvantages Of Shareholder Value Approach Finance Essay. They are therefore entirely in keeping with the philosophy of stakeholder theory. Moving from shareholder value maximization to shareholder welfare maximization may be a small step in theory, but it could trigger a leap forward in the way our corporations are run. There is no doubt that a shareholders’ agreement has numerous advantages, but there are a few disadvantages to having such a contract in place, these are as follows: Less flexibility : Having a contract in place for how shareholder relationships and the company is governed can be seen as preventing the company from being run in a flexible way. Employees Capitalism, Corporations and the Social Contract - by Samuel F. Mansell March 2013 Oliver Hart is Andrew E. Furer Professor of Economics at Harvard University. Finally, there are others advantages of the stakeholder theory. Stakeholder theory hold that organizations that have close, transparent, effective, and efficient relationships with their stakeholders will be better suited to compete and remain sustainable The advantage is self evident. The Advantages of Being a Shareholder By Gregory Hamel Updated March 28, 2017 When you have excess cash, you could simply stash it in a safety deposit box for safekeeping or put it into a savings account, but buying assets that that have the potential to increase in value can result in … Get an answer for 'What are the advantages and disadvantages of giving shareholders a larger say in the operations of a firm?' 5.2 The Shareholder-Stakeholder debate There is no doubt that the shareholder and stakeholder theories are both dominant theories of corporate governance. The theory presents a moral basis for respecting human rights and promoting efficiency. Nowadays shareholder value approach reflects to a modern management philosophy, which implies that an organization measures its success by enriching its shareholders. Resource-based theory suggests a firm’s competitive position is defined by its unique bundle of resources and relationships (Rumelt, 1984). 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