Explain the stakeholders theory of a firm?
Solution:
According to the stakeholder theory, the firm should create value for all the stakeholders of the firm and not just the shareholders of the firm. The major stakeholders of the firm are customers, employees, shareholders, suppliers, distributors and other members who are associated with the firms business directly or indirectly. The stakeholder theory of a firm states that a firm should focus on creating value for all the stakeholders of the family instead of creating value only for shareholders of a firm.
By creating value for all the stakeholders of a firm, the firm is able to satisfy all the stakeholders and thus the business of the firm is becoming more sustainable and creating value continuously for all the stakeholders. If a firm is not able to satisfy all the stakeholders of the firm then the sustainable advantage ceases to exist sooner or later and thus does not help the firm in any way. Hence, it is necessary for a firm to satisfy the needs of all the stakeholders and create value for all the stakeholders to be able to sustain in business.
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Shareholder theory is based in the field of economics on the premise that businesses exist to create wealth for its owners – its shareholders. Stakeholder theory broadens that view to include a greater community of constituents. The two theories are not mutually exclusive. They overlap – shareholders are stakeholders too – and compete for a larger role in the purpose of the firm. Shareholder theorists believe in the concept of the “invisible hand of self-regulation”. Limited government and regulatory intervention...
Shareholder theory is based in the field of economics on the premise that businesses exist to create wealth for its owners – its shareholders. Stakeholder theory broadens that view to include a greater community of constituents. The two theories are not mutually exclusive. They overlap – shareholders are stakeholders too – and compete for a larger role in the purpose of the firm. Shareholder theorists believe in the concept of the “invisible hand of self-regulation”. Limited government and regulatory intervention...