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Stakeholder’s Paradox

Stakeholder’s Paradox

The stakeholder’s paradox, according to Kenneth Goodpaster, is that neither Milton Friedman and Ed Freeman’s theories about stakeholders is completely right Milton Friedman says that a company’s main goal is to maximize profits only to the stockholders. The owners own the corporation and therefore the profits belong to them. So why care about anyone else other than the shareholders? Everyone else involved are merely strategic tools that assist in some way to maximize profits but don’t benefit in the same way a shareholder does.

Saying this pretty much says that the non-owners are not human, and are just tools used to help maximize profits for the owners. Ed Freeman on the other hand says something a bit different. He says that both the owners and stakeholders have a right to demand certain actions from management because they all have a vested stake in the corporation. But saying this makes everyone equal when they are really not.

Kenneth Goodpaster says neither is completely right and takes a little bit of both theories to come up with the conclusion that yes the owners are important but we should also take into consideration the needs and feelings of the stakeholders too, since after all they are human and not mere strategic tools. Goodpaster still agrees that the corporation’s purpose is to maximize profit for its owner. Goodpaster basically says everyone matters but not necessarily in an equal way like Freeman puts it.

Obviously the stockholders are considered more special in a way than the stakeholders because they are fronting the money to run a corporation. Not that the stockholders are more important to management but their relationship with management is different that the relationship management has with the stakeholders. Management is obligated to do their job by contract with the stockholder. They have committed themselves to do so. They are to maximize profits for the stockholder because that is what they signed up for, it is their job.

Although management has more obligations to the stockholders, management are still human and have a duty to not only the shareholders but the stakeholders as well, and to anyone else in the world to treat them like a human being. They have a moral duty to not lie, cheat, steal, murder, etc to each of them . Just because they are in the position they are in doesn’t make them less human or make them stop sympathizing with people that they don’t have a contract or obligation to.

Nemo dat quod non habet or NDT means nobody gives what he doesn’t have. It means “NDP – Investors should not expect of managers behavior that would be inconsistent with reasonable moral principles. “ While still maximizing profits for the owners of the corporation as a manager is obligated to do, a manager has reasonable ethical expectations to treat the non-owners of the corporations the same way they would treat any other human being, with moral principals.