Can Concept of Enlightened Shareholder Value Succeed in Bridging the Essay

Can Concept of Enlightened Shareholder Value Succeed in Bridging the Gap between the Shareholder and Stakeholders Value Theories - Essay Example Does the concept of Enlightened Shareholder Value succeed in bridging the gap between the Shareholder and Stakeholders Value theories? Critically discuss the advantages, disadvantages and future perspectives of this new approach. 1. Introduction In the Enlightened Shareholder Value approach, much focus is given to â€Å"corporate stakeholders, including the environment, employees, and local communities† which are considered important in establishing long-term shareholder benefits1. Much debate has been seen throughout the years on what the goals of corporations should be. In order to seek an answer to this query, the shareholder value principle and the stakeholder theory has been considered. The shareholder value principle requires for a corporation to be managed in ways which support the shareholders over and above other parties having claims on the company. This principle has been seen in the US, the UK, Canada, and Australia. The stakeholder theory on the other hand declare s that the goal of the corporation must be to support all individuals who have been identified as stakeholders2. Under this set-up, the organization therefore seeks to manage the corporation for its shareholders, as well as all stakeholders who can be impacted by the organization. This theory is seen in Germany and in some European countries. In general, the shareholder value principle is being applied in most UK corporations. ... The current application of the shareholder theory is based on the Chicago School of Economics which highlighted the fact that the primary purpose of corporations is to maximize the wealth of shareholders; this theory also argues and that resolving social issues are state functions, not corporate functions4. Sharing wealth through philanthropy is therefore considered a useless enterprise for the corporation; in some instances, it may even be considered immoral because it is as good as stealing from the shareholders. The importance of the shareholder has been based on the principle of corporate law supported by the contractarian school in the US5. The contractarians declare that contractual relations among individuals within a company must be considered sacred6. These contractarians therefore uphold the right of the shareholders as the main basis for any corporation. This preference is based on the idea that for as long as the corporation is solvent, the company must be run in favour o f residual claimants7. These claimants have an interest in the company’s profits and therefore, their stake in the outcome of the company is also high. If the company suffers a downturn however, these shareholders also suffer to a significant extent. It is therefore important for shareholders to have a right to control the corporation over and above the interests of stakeholders8. 2.2 Criticism The shareholder theory is however very much focused on earning profits for its shareholders, with little to no concern at all attributed to how, who, or what is affected negatively by the corporation in gaining said profits. This theory also does not consider the environmental, social, cultural, and even political impact of their profiteering