Stockholder Theory Vs. Stakeholder Theory

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Stakeholder theories advocate wider responsibility in business.
Stakeholder theories advocate wider responsibility in business. (Image: Image Source/Photodisc/Getty Images)

There is a general debate in the social sciences and other fields over the basic duties and responsibilities of private businesses. Not all businesses behave in the same way or share the same goals. Some focus solely on profits; others focus on other business drivers. Stockholder and stakeholder theories can determine the approach businesses take.

Stockholder Theory

Advocates of the stockholder theory focus on the different functions that organizations can fulfill. Private businesses, according to this theory, generate wealth by seeking to make maximum profits to pass on to their shareholders. On this basis, other kinds of organizations, such as non-profits and government agencies better fulfill other functions of organizations.

Stakeholder Theory

Advocates of the stakeholder theory believe that businesses owe their existence to a greater community. This brings a basic duty to enrich and improve the well being of this community. If this does not happen, an impoverished or dysfunctional community will interfere with the proper activity of all its businesses. On this basis, self-interest also plays a part in stakeholder theory.

Ethics

Business ethics is part of the debate between stockholder and stakeholder theories. In different contexts, either theory may seem to be more valid than the other. Business ethicists often focus on bridging the gap. They show how a business might pursue the greatest profit for its shareholders while still paying ethical dues to the greater community. Honesty in business accounting is an example of where duties converge.

Regulation

The decision to follow either theory tends to be an internal one, but external government regulation may impose both stakeholder and stockholder duties on businesses. Stockholder theory and stakeholder theory may influence government regulation, however, in the sense that the duties of a business may shape its regulated activities and how they develop.

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