2️⃣
Two different vision of firms
On one side there is Milton Friedman vision, in this vision firm is seen as a property of the owner, its
only purpose is to make profits (while respecting the lows of the country). Managers are agents of
the stockholders and they have to create value only for them and the interest of the owner is more
important than the others (the owner has a lot of power)
On the other hand there is Freeman theory (stakeholders theory): he assert that corporations create
value for the society, so their main purpose is to satisfy needs of the society creating a lot of other
values in addiction to profit. Also in the Freeman theory every stakeholders have the right to propose
his own ideas and they will be taken into account.
Milton Friedman “the business of Edward Freeman: “the purpose of business is to create value for all
business is business” stakeholders”
Shareholders theory of the firm (Ownership theory -
Stakeholder theory of the firm (Freeman)
Friedman)
Firm and corporations create value for society
firm is seen as property of its owner (he can do what he want)
(so for everyone, so for stakeholders)
The purpose is to satisfy needs of the society:
The only purpose is to make profits (while of course following
in fact corporations must create many other
the regolations imposed by the government)
values in addition to profit
The managers and the employees are only working for
The accountability is spreaded among all the
shareholders (the one who have shares of the company) and
key stakeholders
have no obligations to others (stakeholders)
The interest of the Owner has the precedence over all the All stakeholders interests must be taken into
others account
Pros and cons of this theories
Shareholder theory: the pros is very objective, the profit is maximized. The cons is that it can lead to
short-termism, and neglects social responsibility.
Stakeholder theory: the pros is that it promotes long-term sustainability, ethical consideration. The
cons is that it can lead to conflict of interests (different people that lead the organization might have
different priorities), also it is harder to measure success.
Shareholder theory Stakeholder theory
promote long-term sustainability, it is also far more
the profit is maximized (objective pros) ethical and take account also of the social
responsibility that they have
but it can led to short-termism because people will find Can lead to conflicting interests and it is also harder to
alternatives to your company that doesn’t care about measure success since the goal of the company is not
Two different vision of firms 1
, Shareholder theory Stakeholder theory
stakeholders and in a range of two years the sell will just to make profit but to propose many other values
fall.
Core argument of the stakeholder theory:
All companies that follows the stakeholder theory assert three main argument to motivate their
decision.
Descriptive instrumental Normative
It is important to consider all company that behave responsibly at the end it the right things to do to
stakeholders will perform better financially consider all stakeholders
What approach is apple following?
Apple has been giving support for over $100 million of teaching and learning solutions to 114
underserved schools across the country (we’ve donated an iPad to every student, and iPad and a
Mac to every teacher and an Apple TV to every classroom).
They also have an employee donation and volunteering program that last decade raised nearly $725
million
So Apple seems to be following the stakeholders theory
But on the other hand producing value for the society is not the only thing that apple is doing.
They’ve also implemented a very good stock buyback program in order to create massive value for
the shareholders (apple spent more then $600 billion over the last decade to repurchase its own
shares).
So apple is trying to balance the two theories
Most firms are trying to balance the 2 theory
«Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.
Profits are essential if a company is to effectively serve all of its stakeholders over time – not only
shareholders, but also employees, customers, and
communities. Similarly, when a company truly understands and expresses its purpose, it functions
with the focus and strategic
discipline that drive long-term profitability.» LARRY FINK (BlackRock CEO)
What Johnson & Johnson said?
THE CREDO
Our first responsibility is to patients, doctors and nurses, to mothers and fathers and to all the one
that use our products and services. In fulfilling their needs everything we do must be high quality.
We must always provide value, reduce our costs to maintain reasonable prices. Our business partner
must be an opportunity to make fair profit
They believe in the long run
Firms have different responsibilities nowadays
Two different vision of firms 2
Two different vision of firms
On one side there is Milton Friedman vision, in this vision firm is seen as a property of the owner, its
only purpose is to make profits (while respecting the lows of the country). Managers are agents of
the stockholders and they have to create value only for them and the interest of the owner is more
important than the others (the owner has a lot of power)
On the other hand there is Freeman theory (stakeholders theory): he assert that corporations create
value for the society, so their main purpose is to satisfy needs of the society creating a lot of other
values in addiction to profit. Also in the Freeman theory every stakeholders have the right to propose
his own ideas and they will be taken into account.
Milton Friedman “the business of Edward Freeman: “the purpose of business is to create value for all
business is business” stakeholders”
Shareholders theory of the firm (Ownership theory -
Stakeholder theory of the firm (Freeman)
Friedman)
Firm and corporations create value for society
firm is seen as property of its owner (he can do what he want)
(so for everyone, so for stakeholders)
The purpose is to satisfy needs of the society:
The only purpose is to make profits (while of course following
in fact corporations must create many other
the regolations imposed by the government)
values in addition to profit
The managers and the employees are only working for
The accountability is spreaded among all the
shareholders (the one who have shares of the company) and
key stakeholders
have no obligations to others (stakeholders)
The interest of the Owner has the precedence over all the All stakeholders interests must be taken into
others account
Pros and cons of this theories
Shareholder theory: the pros is very objective, the profit is maximized. The cons is that it can lead to
short-termism, and neglects social responsibility.
Stakeholder theory: the pros is that it promotes long-term sustainability, ethical consideration. The
cons is that it can lead to conflict of interests (different people that lead the organization might have
different priorities), also it is harder to measure success.
Shareholder theory Stakeholder theory
promote long-term sustainability, it is also far more
the profit is maximized (objective pros) ethical and take account also of the social
responsibility that they have
but it can led to short-termism because people will find Can lead to conflicting interests and it is also harder to
alternatives to your company that doesn’t care about measure success since the goal of the company is not
Two different vision of firms 1
, Shareholder theory Stakeholder theory
stakeholders and in a range of two years the sell will just to make profit but to propose many other values
fall.
Core argument of the stakeholder theory:
All companies that follows the stakeholder theory assert three main argument to motivate their
decision.
Descriptive instrumental Normative
It is important to consider all company that behave responsibly at the end it the right things to do to
stakeholders will perform better financially consider all stakeholders
What approach is apple following?
Apple has been giving support for over $100 million of teaching and learning solutions to 114
underserved schools across the country (we’ve donated an iPad to every student, and iPad and a
Mac to every teacher and an Apple TV to every classroom).
They also have an employee donation and volunteering program that last decade raised nearly $725
million
So Apple seems to be following the stakeholders theory
But on the other hand producing value for the society is not the only thing that apple is doing.
They’ve also implemented a very good stock buyback program in order to create massive value for
the shareholders (apple spent more then $600 billion over the last decade to repurchase its own
shares).
So apple is trying to balance the two theories
Most firms are trying to balance the 2 theory
«Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.
Profits are essential if a company is to effectively serve all of its stakeholders over time – not only
shareholders, but also employees, customers, and
communities. Similarly, when a company truly understands and expresses its purpose, it functions
with the focus and strategic
discipline that drive long-term profitability.» LARRY FINK (BlackRock CEO)
What Johnson & Johnson said?
THE CREDO
Our first responsibility is to patients, doctors and nurses, to mothers and fathers and to all the one
that use our products and services. In fulfilling their needs everything we do must be high quality.
We must always provide value, reduce our costs to maintain reasonable prices. Our business partner
must be an opportunity to make fair profit
They believe in the long run
Firms have different responsibilities nowadays
Two different vision of firms 2
