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Stakeholder Theory and Corporations Obeying the Law

Paper Type: Free Assignment Study Level: University / Undergraduate
Wordcount: 1079 words Published: 11th Jun 2020

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Is it necessary for corporations to obey the law? Are firms only meant to earn profit or they owe a social obligation towards the people in the society. Business ethics consider various theories, and arguments are framed on the basis of both. Stakeholder theory obey law and treat ethically while generating wealth to the shareholders. According to the theory, problems in the business can only be solved when behave ethically.

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In the article Business Ethics and Stakeholder Theory, Cragg, talks about Stakeholder Theory and other people’s theory such as Freidman’s Philosophy, is simple in that business has only one mandate and that is to profit (W., Business Ethics and Stakeholder Theory, 2002). This mandate means that a business only needs to be concerned with the minimum social standards that the law represents (W., Business Ethics and Stakeholder Theory, 2002). The market can solve all problems. Friedman contests that business are artificial people and do not have the responsibilities that real people do to society (W., Business Ethics and Stakeholder Theory, 2002). The relationship that matters in a business is the principle and agent relationship (W., Business Ethics and Stakeholder Theory, 2002). The shareholders are the principle. The corporate executives, managers etc. are the agents. The agent is directly responsible to the principle and only the principle, not society (W., Business Ethics and Stakeholder Theory, 2002). This means the agent is tasked to make as much profit as he can legally for his principle (W., Business Ethics and Stakeholder Theory, 2002).

Indeed, the agent when acting on his own and with his money can be socially active with their money (W., Business Ethics and Stakeholder Theory, 2002). If an individual wants to be philanthropic this will be applied to the Stakeholder’s Theory that’s fine but with Friedman’s Theory, the only goal is to maximise profit.

Friedman’s philosophy does trend a little towards psychological egoism he describes that in an ideal free market resting on private property, no individual can force any other to corporate, and cooperation is voluntary based on benefit which is like Hobbies view. This also means that no corporation should perform social responsibility. However, Stakeholder Theory Opposes this view by saying good manager fulfils the role of manager by building foundation to the business (W., Business Ethics and Stakeholder Theory, 2002).

This view of self-interest causes Friedman to tolerate companies making actions that appear to be in line with “social responsibility” as log as that creates the opportunity for more profit (W., Business Ethics and Stakeholder Theory, 2002). Major employer can create infrastructure in a community to increase the appeal of the area to attract better prospective employees (W., Business Ethics and Stakeholder Theory, 2002). Corporate tax laws may enable deductions to by making donations to charities if it is simple replacing what would have been taxed already (W., Business Ethics and Stakeholder Theory, 2002). Actions like these may seem appear to fall under the guise of “social responsibility” however creating goodwill where the corporation’s bottom line is not harmed can be justified under the idea of self-interest and profit maximization. These actions are perhaps more a moral than immoral however as they are not concerned with any ethical justification (W., Business Ethics and Stakeholder Theory, 2002).

Friedman describes business as a competitive enterprise, putting effort into avoiding pollution, eliminating discrimination, infringes on how a free society operates and would therefore infringe on a business’ ability to produce profit (W., Business Ethics and Stakeholder Theory, 2002). Businessmen who worry about these things are in Friedman’s words “unwitting puppets of the intellectual forces that have been undermining the basis of the society.” (W., Business Ethics and Stakeholder Theory, 2002).Therefore, what use is a code of ethics that prohibits these things? Society would likely consider it ethical defeat to focus on profit exclusively above any concern about ethical matters such as environment and discrimination. Friedman would likely respond that the market is the answer to life’s problems.

From Friedman there is one and only one aspect that he denies i.e. social responsibility of business-to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is say, engage in open and free competition without deception or fraud”.


In my opinion, Code of Ethics are not a stand-alone treatment for problems of organizational ethics. Different cultures are increasing amongst corporations and with that comes different morals and values. Ensuring good accountability system are in place. Considering cultures, morals and values because an ethical code, might interfere with an employee’s moral. Stakeholders will ensure that not only profits or other gains are the objective, but moral behaviours, culture and society will also be determined. Collective decision making will not only involve individuals involved but group decisions consider opinion of all people and therefore, a common conclusion is formed. In Management, guide management helps in achieving success while decision making. In the stakeholder theory, the purpose for the businesses is to maintain social interactions that occurs within the framework of human rights principles communicates respect. Government intervention in the business, convinces corporation to have responsibilities for ensuring wealth that is generated through investment. With this theory, not only it focuses on social aspect but also focuses on shareholders. Therefore, it widens the scope of the business as it leads to accountability to various management perspectives.


After analysing both theories and other aspects of these theories, it is considered that stakeholder theory is the best attain the interest in public and organizational sector. Code of ethics when followed will make things easy and are easy to follow.


  • W., C. (2002). Business Ethics and Stakeholder Theory. Business Ethics Quarterly, 12.


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