Lesson 4 of 7 · 12 min
Shareholder versus stakeholder theory
Shareholder theory runs the company for its owners and weighs others only through their effect on share value; stakeholder theory makes all stakeholders' interests (including ESG) explicit objectives, at the cost of complexity.
In short
- A stakeholder is any person or group with a vested interest in the company: investors, the board, managers, employees, customers, suppliers, governments, society and the environment.
- Shareholder theory: the board and managers serve shareholders; other groups count only as far as they affect shareholder value.
- Stakeholder theory: governance should consider all stakeholders, often with ESG as an explicit objective.
- Challenges of stakeholder theory: balancing many objectives; defining and measuring non-shareholder goals; competing with less constrained rivals; direct costs of higher ESG standards.
- The two theories often converge in the long run: treating employees, communities and customers well can raise profits.
- Managers are agents of shareholders; performance- and share-based pay and independent boards help align interests.
Unlock this lesson free for 7 days
Create a free account to get 7 days of full access — every lesson, video, flashcard, mock and the question bank. No card needed.