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

• Briefly describe shareholder theory, stakeholder theory, and stakeholder salience

Answer:- The shareholder theory states that the primary objective of any organization is to maximize the return on investment or the profit of its shareholders.

While the stakeholder theory includes the wide variety of people who have a direct or indirect interest in the organization. As per this theory, the main objective of any organization is to protect and promote the interests of different stakeholders which can include customers, employees, shareholder, vendors and suppliers, community, government  NGOs and anyone which has a direct or indirect impact due to the operation of the organization.

stakeholder salience theory indicates that the vital or critical stakeholders are those who have one of the three types of relationships with the organization which are power, legitimacy, and urgency.

• Compare the three concepts. In what ways are they similar? In what ways are they different?

Answer:- The Shareholder theory mainly gives the importance of profit maximization of the shareholders of the organization, stakeholder theory mainly focuses on benefiting the different stakeholders of the organization while stakeholder salience theory manly depends on the relative importance of the stakeholders.

All of the theories are similar in the sense that they a try to maximize the interests of their stakeholder and the managers are required to protect and promote those who have interested in the organization.

While the difference lies in the nature of those who are in the focus of the theories. For example, the shareholder theory focuses on the shareholders, stakeholder theory gives importance to overall stakeholders or community while the stakeholder salience theory focuses on those stakeholders who have a close relationship with the firm.

• Which of the three concepts do you think has the most potential to positively impact business strategy? How? Why?

Answer:- Stakeholder theory will have the maximum positive impact on the business strategy as this theory deals with different types of entities such as customers, employees, shareholder, vendors and suppliers, community, government  NGOs. As this theory mainly deals with the promotion of common gains of the society and its various constitutes, this will have the positive impact on the performance of the organization and its reputation and image among the public.

• Which of the three concepts do you think has the most potential to negatively impact business strategy? How? Why

Answer:- Shareholder theory will have a negative impact on the business strategy as the main focus of this theory is on increasing the return on investment of shareholders and thus in order to do so, the business can ignore the interest of community and society as the bottom line of this theory remain on earning the greatest possible profits for the shareholders by any means.

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