Article Writing Homework Help

Create a 7 pages page paper that discusses directors duties towards shareholders and stakeholders. Business operations can include (but may not be limited to) employees, customers, suppliers, community organizations, local neighbourhood and shareholders.’-Wikipedia. CSR entails that corporations should contemplate the actual and impending effects of their decisions on other stakeholders as well. It is correlated with the principles of sustainable development, which propagate that social, environmental and other consequence of business decisions should be taken into consideration. These two aspects can be better understood by examining the shareholders and stakeholders theories. The main ideas of the two theories are juxtaposed under the following heads.

Director’s fiduciary duties: The Shareholder’s theory advocates that value maximization should be the governing corporate objective. It makes a plea that the interest of the shareholders should precede over that of other constituents, based on the presumptions of capitalism. The supporting view is that the director’s fiduciary duty is to run the company in the interest of the shareholders. Traditional property rights are cited as a justification for this argument. The shareholders are the owners of the company, therefore they hold property rights.

Sternberg points out, “What using business resources for non-business purposes actually is, is theft, an unjustified appropriation of owner’s property”-(Sternberg 1997:82). Another validation for this argument is given by the principal-agent relationship between the directors and shareholders. The directors in the capacity of agents are liable to act in the best interest of their principals, therefore strive for profit maximization.

The chief proponents of the stakeholders’ theory are Donaldson and Preston. According to this school of thought, directors should have multi fiduciary duties towards all the stakeholders. Stakeholders are the people who affect and are affected by the company. The stakeholder’s view of strategy is an instrumental theory of the corporation, integrating both the resource-based view and the market-based view, it is opposed to the view where the company solely tries to increase the value for shareholding. The stakeholder group should not be treated as a means to some end but must be participative in determining the direction of the company in which they hold a stake.

The basis for determining business relationships: As per the shareholders’ theory, business relationships are determined by legal contracts. Thus, it recognizes accountability towards those parties with whom explicit legal contacts have been signed. It follows Sternberg’s argument that such contracts are made under ‘libertarian free contracting”. This vastly limits the scope of the corporation’s obligations. On the other hand, the stakeholders’ model advocates social and moral obligations towards all those who affect or get affected by the company, these obligations may become binding on the company via legal or implied contracts. Both the theories accept that the firm is a nexus of contacts but differ about the basis for determining those contacts.

The objective of wealth creation: The two theories take different stands about the nature of these contracts. Kay’s work in strategic management (Kay1993), show that managing contracts on collaborative, ‘relational’ basis can lead to competitive advantages directly benefiting shareholders. Thus, shareholder’s theory acknowledges that contacts should be favourably managed, beyond duty not to harm but does not encompass multi-fiduciary duties.&nbsp.&nbsp.