Appropriate Objectives: Managers in Accounting and Finance
According to the classical theory of the ethical responsibilities of a firm, the sole obligation of the firm is to shareholders and the need to make a profit to sustain them economically. However, this classical theory has since been challenged by arguments that sustainability, obligations to employees and the community, and professional and social ethics must also influence firm decision-making. Particularly in the wake of a rash of corporate scandals, there have been calls to reevaluate the focus on profit-making alone, particularly profit-making with a single-minded focus on the short term.
According to Jensen (2010) “at the heart of the current global corporate governance debate is a remarkable division of opinion about the fundamental purpose of the corporation” (p.32). Managers, particularly in the realm of accounting and finance, may find themselves in the thick of such debate as the formerly single-minded focus upon the balance sheet has since shifted. One solution which has been advocated is that of stakeholder theory which suggests that rather than solely focusing on the needs of shareholders, managers must instead take into account all individuals that have a stake in the firm’s success or failure, not simply shareholders who are the technical owners of the firms but employees, customers, the community as a whole, and even the larger political climate.
Jensen (2010) counters that...
References
Jensen, M.C. (2010). Value maximization, stakeholder theory, and the corporate objective
function. Journal of Applied Corporate Finance, 22 (1), pp. 32-42.
Letza, S., Sun, X. & Kirkbride, J. (2004). Shareholding versus stakeholding: a critical review of
corporate governance. Corporate Governance, 12 (3), pp. 242-262.
Stakeholder management is a concept applied to many types of organizations, where strategic decision-making takes into account the interests of multiple different stakeholders (Thompson, 2016). Advocates of the stakeholder perspective have argued that the stakeholder approach is a better way to evaluate a business' success, as opposed to strictly considering financial results (Perrini & Tencati, 2006). The concept of the balanced scorecard hypothesizes that businesses that look after the interests
If the enhanced stakeholder perspective is truly the best for corporate social responsibility, this has significant implications not only for management but also for corporate governance. While Nohria (no date) argues that corporate governance is a hygiene factor in that its absence is a problem for companies but its presence did not correlate with improved performance, this is only for basic levels of governance. For a board to truly adopt
Abuse of power also adds to the list. In regard to the remedies that may be used in taking care of unfair prejudice. It is therefore evident that the Companies Act 2006 has several changes that are relevant to the protection of the shareholder. The most relevant parts being sections 994 and 996 Creditor protection Creditor protection is noted by Bachner (2009) as an important element of every company. The changes contained
Stakeholder Approach to Corporate Responsibility This essay examines the question of whether adopting a stakeholder approach is a sufficient means of assuring that corporations meet their moral responsibilities due society. The essay includes a survey of the literature on the subject. Any discussion of the effectiveness of stakeholder theory must address who and what are considered stakeholders. R. Edward Freeman (1984) defines stakeholders as "any group or individual who can affect or
In other respects, however, the evidence does not readily conform to theoretical predictions. For example, if gross job turnover is taken as a rough proxy for labor market flexibility -- and since stringent EPL reduces both hiring and firing -- it is quite surprising to find that job turnover rates are very loosely related to EPL rankings. Most remarkably, not only are the estimates for Italy and France, at
Also, businesses should be open to the idea of changing the way these relationships are formed and maintained to make way for the changing business environment. "Changing the prevailing relationship a firm has with its stakeholders offers an opportunity for innovation and the economic rewards that accompany such innovation" (Harting, Harmeling & Venkataraman, 2006, p.44). Conclusion In short, different stakeholder groups have a big impact on the performance of a company. Their
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