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How Companies Ethically Balance Owner, Stockholder & Stakeholder Interests

How Companies Ethically Balance Owner, Stockholder & Stakeholder Interests
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  • 0:01 Ethical Balance
  • 0:53 Shareholder Model
  • 2:16 Stakeholder Model
  • 3:49 Lesson Summary
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Lesson Transcript
Instructor: Jennifer Lombardo
Companies can adopt the shareholder or stakeholder models to ethically balance owner, stockholder and stakeholder interests. The focus of a company can be on maximizing profits or long-term survival.

Ethical Balance

Have you ever felt the pressure of trying to please everyone in your life? Corporations have the same challenging task. They have to satisfy and support various groups that they depend upon for their long-term survival. In this lesson, you will learn how companies ethically balance owner, stockholder and stakeholder interests.

An ethical balance is when a company is able to find a moral compromise between company and owner, stockholder and stakeholder interests. The shareholder model and the stakeholder model are the two alternative theories companies can subscribe to in regards to creating an ethical atmosphere.

Phojack and Film Booth are both manufacturers of film, cameras and digital equipment. We are going to examine how each company makes different ethical choices in balancing the interests of their company supporters.

Shareholder Model

The shareholder model supports the belief that the only social responsibility a company has is to maximize profits. Phojack is the preeminent maker of photography film. Their focus is to increase profits, which will result in an increase in stock price to satisfy shareholders.

Phojack believes that they should not be concerned with charitable actions or supporting social causes. They feel that it is not possible to balance every shareholder's interests and act as a moral agent, or someone who makes moral decisions as to what is right or wrong. Phojack believes that the shareholder who profits from their company's stock increases can invest their own money in whatever charitable organization they desire.

For example, Phojack recently invested in an expensive launch of cutting edge 4K digital cameras in order to reap high stock returns. The company had been approached by various charities through stakeholders, but declined participation. They told the charities to approach their stakeholder groups instead.

One issue with this theory is that some stakeholders might not agree with this philosophy of conducting business. Companies will lose some stakeholder support of those groups or individuals that have a belief that social causes should be a part of a company's overall plan.

Stakeholder Model

The stakeholder model is the second model that companies can adopt as a way to ethically balance owner, stockholder and stakeholder interest. Film Booth subscribes to this model, which is focused on the company's long-term survival and profitability. It is not just based on maximizing shareholder's profits. Various stakeholders' interests are considered a priority, unlike the shareholder model.

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