The Corporate Objective
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The Corporate Objective

Andrew Keay

The Corporate Objective addresses a question that has been subject to much debate: what should be the objective of public corporations? It examines the two dominant theories that address this issue, the shareholder primacy and stakeholder theories, and finds that both have serious shortcomings.
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Chapter 3: Stakeholder Theory

Andrew Keay


1. INTRODUCTION We now come to the second dominant theory concerning the objective of the company, namely the stakeholder theory (also known as the ‘stakeholder model,’ ‘stakeholder framework’ or ‘stakeholder management’1). This approach operates widely in many continental European and East Asian countries. The prime examples are usually said to be Germany and Japan. Clearly there are more than just shareholders who contribute to a company. There are others who are affected by the actions of the company. Should the shareholders or non-shareholders with interests in the company or both have their interests taken into account when constructing a normative objective for the company? There are scholars who refer to persons and groups who contribute to the company as stakeholders,2 constituencies or even contributors. Others count people or groups affected, or potentially affected by the company as stakeholders. For this Chapter I will refer to such people and groups as stakeholders, in order to be consistent with the majority of the literature dealing with the theory, but in later Chapters I prefer to refer to some of them, at least, as investors. Some of these stakeholders do not have contractual protection nor do they have protection afforded by fiduciary duties, and it is argued that their interests deserve consideration by directors when they are managing the affairs of the company. As far as public companies are concerned it has been contended that their affairs are of such broad public concern, 1 R.E. Freeman, Strategic Management: A Stakeholder Approach...

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