Freeman Stakeholder Theory Essay Example | Topics and Well Written Essays - 500 words

Freeman Stakeholder Theory - Essay Example Employees have their jobs and livelihoods at stake and suppliers provide raw materials to the corporation, hence its success is vital to their success. Similarly, managers, customers and the community are other stakeholders in the corporation, all of whom stand to benefit from it. (Freeman, 1984). On this basis, Freeman argues that changes that have occurred in corporations law have resulted in constraints, in that stakeholder interests are being compromised in the interest of promoting the interests of stockholders, which has produced an outcome that is not conducive to the general good. He therefore contends that all stakeholders have the right to benefit equally and need to participate in determining the future direction of the firm. The purpose of the firm cannot be described as merely that of maximizing profits for stockholders (Freeman, 1999). Freeman bases his Doctrine of Fair Contracts on a normative basis, i.e, that fairness dictates that the purpose of the firm and its operations should be such as to ensure that there is a basic equality maintained among all groups of stakeholders. Therefore, the normative basis applies justice and fairness, as outlined in Rawls’ theory, using the device of the social contract. Under the social contract, every person has the right to certain basic liberties, which are equal to that which others have (Rawls, 1971:53). Furthermore, opportunities should be available to everyone without restriction and they must be of the greatest benefit to the least advantaged members of society (Rawls, 1971:303). Applying a normative basis to stakeholder holder theory, the guiding principle is that a firm should be managed in such a way that the benefits are balanced for all stakeholders and this is achieved by the Fair Doctrine principles outlined above. When a firm is managed in such a way that only stockholders benefit, then this may undermine the