· Demonstration of knowledge of the issues and evidence of wide reading to support your analysis · Demonstration of your ability to apply the knowledge to identify keys issues leading to your...

Contents
1. Executive Summary .............................................................................................................................. 2
2. Analysis............................................................................................................................................. 3
3. Case of American Pharma Company .................................................................................................... 6
4. Conclusion: ........................................................................................................................................... 7
Reference list: ............................................................................................................................................... 8
1. Executive Summary
Shareholder theory Vs stakeholder theory has been the area of research and discussion among the
corporates and researchers. There are numerous theories available on the subject. There are 2
school of thoughts that clearly advocates their theory and always try to prove that one of the
theory is better than another. However, there is no statistics available that can prove adoption of
which theory can yield better results. The important to remember here is that both these are
normative theories and advocated the different routes for achieving the same end i.e. financial
success for the firm. Both these theories focuses on creating value, value maximization to the
extent it is possible by honoring all possible laws and without fraud and misconduct. Thus, it
does not necessarily has to be zero sum game between the theories and executives can
accommodate the best of both the theories for the single common goal which is long term value
maximization. The recommendation to AICD is that both these theories can be used together
creatively so as to take the board decision which are responsive to diverse stakeholder
community and managers should focus more on long term value maximization and take decision
which are financially conducive for the organization by respecting the boundaries of law.
The purpose of this paper is to critically analyze both the theories and understand them in depth
and evaluate how the executives can use both these theories for the greater good so that they will
be more responsive to diverse audiences. The approach of this paper is quite neutral as it
discusses both these theories along with the examples and includes the viewpoints from disciples
of both these theories. Example of world leaders like Disney and GE will also be used to signify
the theory they are following.
2. Analysis
This is the age of competition and collaboration. In such challenging times, firms are also
rediscovering and redefining the purpose of their firm by moving to more collectivism approach
as compared to individualism. There are 2 well known competing theories called shareholder
theory and stakeholder theory and most of the organizations premises their objectives on 1 of
these theories. However, it would be absolutely wrong to say that any 1 of these theory is better
than the other. Both has their own pros and cons but it is very important for the management to
understand these theories in depth so that they can think creatively, take a middle path and take
decisions which includes the best of both the theories .
As per the shareholder theory, the sole purpose of the company’ directors and management is to
maximize the shareholders return as they are the actual investors in the business and they will be
ones who lose their wealth if the business is not doing well. However, as per the stakeholder
theory, managers have a responsibility towards greater audience called stakeholders which
includes customer, society, suppliers, and employees. Shareholders are just subset of
stakeholders.
As the corporate social responsibility is increasingly become more important for the
organizations, they are increasingly revising their objective to serve the greater purpose than just
to serve the purpose of the shareholders. As per the disciples of stakeholders theory, focus on
shareholder theory is the reason behind the...