Maureen McDonald
PHIL 254-01
9/20/14
Essay #1
Do Not Make a Mis-Stake
In today’s society most individuals do not have any say in what an organization is going
to do, the only way that an individual can have a say is by being highly invested into said
organization. American Philosopher, R. Edward Freeman thought of another unique way to
approach and aid with the problems that occur from what he views wrong with capitalism. The
idea that was thought could fix the issues he viewed with capitalism was Stakeholder theory.
Stakeholder theory is filled with holes and issues, which has lead to its inability to function
properly and because of these flaws; it is unable to replace capitalism.
I will focus on what Stakeholder theory is and its importance to those invested in an
organization. Additionally, I will touch on why I believe that Stakeholder theory is incorrect.
Even though the idea of all individuals having a say into what an organization does sounds
wonderful; sometimes it is just better left for the one in charge and who has a knowledgeable
background in the field.
Shareholder theory and Stakeholder theory are not the same in any means. Economists
Milton Friedman thought up Shareholder theory. Which is a theory that revolves around social
responsibility and organizations only hearing input from the individuals that own into them.
“Only people can have responsibilities. A corporation is an artificial person and in this sense may
have artificial responsibilities, but “business” as a whole cannot be said to have responsibilities,
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even in this vague sense.”1. Edwards Freeman created stakeholder theory, yes their names do
sound the same but these two men were not on the same page when they thought of these two
different theories.
Personally, I believe that Stakeholder theory has to many holes in it to be correct. Many
individuals today are happy with capitalism and would not want to see it replaced with a theory
that could make them less profit. Many individuals are interested solely on gaining the largest
return possible and not about playing fair with all members involved in the party. Even though
capitalism is not the most prudent of choices it still is favored greatly in todays society because
too many individuals are self-centered and concerned with their self-happiness.
R. Edward Freeman’s concept of Stakeholder theory, “is a generalization of the notion of
stockholders, who themselves have some special claim on the firm. Just as stockholder have a
right to demand certain actions by management, so do other stakeholders have a right to make
claims”.2 In laymen’s terms this means that all that have invested into the organization share a
right in voicing what should be done and how it is to be done. “The basic idea of managerial
capitalism is that in return for controlling the firm, management vigorously pursue the interests
of stockholders.”3 Additionally, this theory address morals in managing organizations. “Stakes
require action of a certain sort, and conflicting stakes require methods of resolutions”. 4
Freeman breaks down as to who makes up a stakeholder: owners, corporate manager, the
local community, customers, employees, and the suppliers. Each of these six different sub groups
Friedman, Milton. "The Social Responsibility of Business Is to Increase Its Profits." The
New York Times, September 13, 1970, 1-5.
2 Freeman, R. Edward. "Stakeholder Theory of the Modern Corporation." In General Issues
in Business Ethics, 41.
3 Freeman, R. Edward. "Stakeholder Theory of the Modern Corporation." In General Issues
in Business Ethics, 39.
4 Freeman, R. Edward. "Stakeholder Theory of the Modern Corporation." In General Issues
in Business Ethics, 41.
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are all key in the success of making sure that the theory works. “The stakes of each are
reciprocal, since each can affect the other in terms of harms and benefits as well as rights and
duties. The stakes of each are not univocal and would vary by particular corporation.”5 These
groups all follow the Doctrine of Fair Contracts that act as ground rules. These ground rules are
as listed: The Principle of Entry and Exit, The Principle of Governance, The Principle of
Externalities, The Principle of Contracting Costs, The Agency Principle, and finally the Principle
of Limited Immortality. “Think of these ground rules as doctrine in which would guide actual
stakeholders in devising a corporate constitution or charter. Think of management as having the
duty to act in accordance with some specific constitution or character.”6
This theory is quite interesting in the sense that it does allow all players involved
internally to be involved into those externally involved, to have a voice in the decision making.
Though having this many groups involved can lead to some future issues. This is so because not
one individual thinks the same exact way as the next person, so there will always be differing
opinions and sides. This is one of reasons as to why Stakeholder Theory is incorrect. Sometimes,
just because you are invested into an organization does not mean that you always know what is
best for the organization. That is why there are individuals that work for the company that are
knowledgeable in making the necessary decisions to better the organizations future.
After reading the Summa Theologiae by Thomas Aquinas, I have decided that
Stakeholder theory is missing prudence. “Prudence is love choosing wisely between the things
that help and those that hinder”.7 I believe that prudence is missing from Stakeholder theory
Freeman, R. Edward. "Stakeholder Theory of the Modern Corporation." In General Issues
in Business Ethics, 42.
6 Freeman, R. Edward. "Stakeholder Theory of the Modern Corporation." In General Issues
in Business Ethics, 47.
7 Aquinas, Thomas. "Second Part of the Second Part." In Summa Theologiae, 1.
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because, I believe that since each group is involved with the decision making process it is harder
to make the decisions that are smarter and trying not to hinder the other groups involved. “Hence
it is evident that prudence resides only in the practical reason.”8
In conclusion, this research has led me to understand what R. Edward Freeman was
trying to achieve by creating Stakeholder theory. Freeman wanted all parties internal and
external from the matter to have a voting opinion, which I do believe that it is good to get other
opinions but at the same time not all of the parties individuals are knowledgeable in the subject
and thus do not make the greatest decisions. Stakeholder theory is filled with holes and issues,
which has lead to its inability to function properly and because of these flaws; it is unable to
replace capitalism.
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Aquinas, Thomas. "Second Part of the Second Part." In Summa Theologiae, 2.
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Bibliography
Aquinas, Thomas. "Second Part of the Second Part." In Summa Theologiae, 1-2.
Freeman, R. Edward. "Stakeholder Theory of the Modern Corporation." In General Issues in
Business Ethics, 39, 41, 42, 47.
Friedman, Milton. "The Social Responsibility of Business Is to Increase Its
Profits." The New York Times, September 13, 1970, 1-5.