Increase in the value of shareholding is accepted as the primary objective of the corporation in the shareholder’ s theory. It is argued that value maximization will result in greater wealth creation. The other school of thought takes a broader view and incorporates social welfare. It propagates the idea of ‘ higher social returns’ . Generation of wealth should go hand in hand with a fairer distribution of wealth that will result in general social welfare. A company must participate in the economic and social life of the community and ensure social returns to the stakeholders on ecological principles.
So, whereas the shareholders' theory ensures satisfaction, stakeholder's theory demands ‘ more than satisfaction’ .After evaluating the claims of the two theories, I reckon that the practice of corporate social responsibility can go hand in hand with competitiveness and profitability. Short term goals of a company should not be detrimental to sustainable development. Management should devise and pursue strategies that increase shareholder’ s value and support stakeholders’ interest as well, to resolve the conflict of interest between the two groups. No company can operate without employees, suppliers, customers.
David Norton, company group chairman Johnson and Johnson, claimed that his firm had been following CSR practices for the past twenty-five years and that the shareholders earned a great return over that period of time. (FT mandate)Stakeholder controlled enterprises around the town of Mondragon in the Basque area of Spain is a case in point. A World Bank study reported that: ‘ During more than two decades a considerable number of cooperative factories have functioned at a level equal to or superior in efficiency than that of capitalist enterprises.
The compatibility question, in this case, has been solved without a doubt. Efficiency in terms of the use made of scarce resources has been higher in cooperatives, their growth record in sales, exports and employment under both favourable and adverse economic conditions, has been superior to that of capitalist enterprises” The Mondragons forms adopted a new model for governance based upon decentralized communication.
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