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    Stakeholder Primacy Shareholder Wealth

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    Dushyant Panda
    The document discusses the theories of shareholder primacy and stakeholder importance. It states that while shareholder theory focuses only on increasing shareholder wealth, stakeholder theory works to benefit the entire stakeholder chain, including suppliers, employees, and customers. The document argues that stakeholder benefit has advantages because it views the firm through a broader lens. It provides examples of how satisfying suppliers and employees can increase long-term shareholder value, as seen in Toyota and HCL. The document concludes that stakeholder primacy leads to shareholder wealth, not the other way around, because taking all stakeholders into account strengthens the overall value chain.

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    Stakeholder Primacy Shareholder Wealth

    Uploaded by

    Dushyant Panda
    35 views2 pages
    The document discusses the theories of shareholder primacy and stakeholder importance. It states that while shareholder theory focuses only on increasing shareholder wealth, stakeholder theory works to benefit the entire stakeholder chain, including suppliers, employees, and customers. The document argues that stakeholder benefit has advantages because it views the firm through a broader lens. It provides examples of how satisfying suppliers and employees can increase long-term shareholder value, as seen in Toyota and HCL. The document concludes that stakeholder primacy leads to shareholder wealth, not the other way around, because taking all stakeholders into account strengthens the overall value chain.

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    Primacy vs Society

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    CG_Puneet

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    The document discusses the theories of shareholder primacy and stakeholder importance. It states that while shareholder theory focuses only on increasing shareholder wealth, stakeholder theory works to benefit the entire stakeholder chain, including suppliers, employees, and customers. The document argues that stakeholder benefit has advantages because it views the firm through a broader lens. It provides examples of how satisfying suppliers and employees can increase long-term shareholder value, as seen in Toyota and HCL. The document concludes that stakeholder primacy leads to shareholder wealth, not the other way around, because taking all stakeholders into account strengthens the overall value chain.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    35 views2 pages

    Stakeholder Primacy Shareholder Wealth

    Uploaded by

    Dushyant Panda
    The document discusses the theories of shareholder primacy and stakeholder importance. It states that while shareholder theory focuses only on increasing shareholder wealth, stakeholder theory works to benefit the entire stakeholder chain, including suppliers, employees, and customers. The document argues that stakeholder benefit has advantages because it views the firm through a broader lens. It provides examples of how satisfying suppliers and employees can increase long-term shareholder value, as seen in Toyota and HCL. The document concludes that stakeholder primacy leads to shareholder wealth, not the other way around, because taking all stakeholders into account strengthens the overall value chain.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 2

    STAKEHOLDER PRIMACY= SHAREHOLDER WEALTH

    The theory of the firm clearly states that the principles of shareholder primacy and
    stakeholder importance are both normative theories of the corporation as in they dictate how
    the firm should be. The modern interpretation of the two theories puts them at odds with each
    other.
    The shareholder theory focuses simply and only on increasing shareholder wealth. In the
    words of Milton Freidman
    There is one and only one social responsibility of business to use its
    resources and engage in activities designed to increase its profits so long as it
    engages in open and free competition, without deception or fraud.
    1

    Therefore shareholder theory does not encourage unethical activity or demand fraud. But
    what is does is completely disregard the stakeholders in the business. The stakeholder theory
    on the other hand works towards benefitting the entire chain including suppliers, employees
    and customers.
    The basic problem with the shareholder theory is not is narrow focus on shareholder benefit
    but rather in its interpretation that short-term increases in a firm's share price can be used as a
    proxy for it.
    Stakeholder benefit on the other hand has various distinct advantages because it views the
    subject through a broad lens. Satisfied suppliers have been seen to be much better partners
    than drained out ones. The oft quoted comparison in this regard is of Toyota vs General
    Motors. Through partnering with suppliers and working towards mutual benefit, Toyota
    managed to enhance and strengthen its value chain and the benefits have been visible. In
    terms of employees the Indian example of HCL has been a standout. In the technological hub
    of India, the toughest task for any company has been retention of skilled labour. HCL's
    approach of " Employees First, Customers Second" has decreased turnover and has pushed
    shareholder value up.
    2
    Therefore the above mentioned instances stand out with two important
    learning's. The first being that stakeholder approach does not oppose shareholder theory.
    Secondly the stakeholder approach is a way to increase long term shareholder value.

    1
    M. Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), 133.
    2
    http://www.economist.com/node/15954434
    The idea that comes out last is that the customer in the end is the king. A satisfied customer
    must be the primary aim of each business entity. This broad lens which takes in all the
    stakeholder primarily has one final impact. It strengthens the value chain. Therefore
    stakeholder primacy leads to shareholder wealth and not the vice-versa.
    PUNEET MANOT
    13PGP102

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