Question

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 in business will result in wealth maximization for the firm and a positive social impact overall. Stakeholder theorists, on the other hand, believe that wealth maximization results from competitive advantage gained by accounting for a broader range of constituents. Criticism of stakeholder theory centers around its broad view of who is a stakeholder. Mitchell et al. (1997) introduced the concept of stakeholder salience where stakeholders “who count” are those “possessing one or more of three relationship attributes: power, legitimacy, and urgency.”

Stakeholder management is an increasingly important aspect of managing projects. One of your responsibilities as a project manager is to identify project stakeholders and assess their potential to impact the success of the project. Understanding stakeholder theory and how it can be applied to managing project stakeholders will increase your effectiveness with this task.

• Briefly describe shareholder theory, stakeholder theory, and stakeholder salience.
• Compare the three concepts. In what ways are they similar? In what ways are they different?
• Which of the three concepts do you think has the most potential to positively impact business strategy? How? Why?
• Which of the three concepts do you think has the most potential to negatively impact business strategy? How? Why?

Answer 1

Shareholder: an individual who has invested in a Company through stocks and formally known as owner or investor of the company is called shareholders.

Stakeholders: Every individual who is associated with the company through their business operations are called stakeholders. Herein even the shareholders, suppliers, employers, employees, customers, consumers and every other individual associated with business operations is a stakeholder

	Shareholder theory	Stakeholder theory	Stakeholder salience
Describing	Shareholder theory states that the purpose of a business is to maximize the wealth of the shareholders.	Stakeholder theory states that the purpose of a business is to create value for stakeholders i.e. Business needs to consider the welfare of the customers, consumers, suppliers, employees, society, environment, and shareholders.	In stakeholder salience, the stakeholders are classified using three parameters namely power, legitimacy, and urgency. Hereby the stakeholders are reordered according to the above-mentioned parameters and their need was fulfilled starting from a stakeholder scoring highest point in above mention parameters.
Similarity	It is giving importance for the welfare of the individual associated with the business Every considered theory deals with corporate governance and illustrates how management has to make a decision. They illustrate who are important individuals to be considered during the business decision.
Dissimilarity	It is giving importance to welfare and wealth maximization of investor or shareholder only Importance was given only to the shareholders Wealth maximization was the only objective A management decision was only based on shareholders’ interest	It is giving importance to the welfare of customers, consumers, suppliers, employees, society, environment, shareholders and every other associated with the business operations. Importance was given to every individual associated with the company. Creating value is a primary objective. Management decisions were influenced by every individual associated with the company.	It ranks an individual of highest priority to least priority based on power, legitimacy, and urgency. Further individuals with high priority were given more preference as they influence the business operations significantly. Importance was given to stakeholders who considerably influence the business operations of the company. Creating value only to stakeholders who significantly influence the business is a primary objective. Management decisions were influenced by considered stakeholders associated with the company based on above-mentioned parameters.
Positive impact	Creates a good image in eyes of investor and attract more investment to the company. Through which many projects can be initiated and ran seamlessly without financial constraint. Good image in eyes of the investor Attracts more investment More projects can be initiated and ran seamlessly without financial constraint.	Creates goodwill in eyes of the public further increases the brand image of the company. But, this does not ensure business being more profitable but ensures success over a period. Increases goodwill of the public Increases brand image Ensures business success over a period	Creates goodwill in eyes of the public further increases the brand image of the company. This action also ensures business being more successful and profitable. Because importance was given more to the stakeholders who are influencing the business function. Increases goodwill of the public Increases brand image Ensures business success and profitability over a period
Negative impact	Good profit can be attained form business but the goodwill of the public is questionable. Hereby the company may grow but may not have a considerable amount of brand image, which is at-most requirement to diversify business to other countries. Considerably less goodwill of the public Considerably less brand image Problem during business diversification	Acquiring goodwill by creating values for every stakeholder depletes profit and it consumes significant money and energy of the company. Considerably less profit Considerable operating expenses Complexity during business decision as every stakeholder needed to be considered	Acquiring goodwill by creating values to important stakeholders depletes profit and it consumes considerable money and energy of the company. Considerably less profit. Considerable operating expenses Complexity during business decision as important stakeholders needed to be considered.