Directors shareholders and rewards


Task One

Shareholder/Stakeholder Theory

b) In the Geoff Moore article, three theories have been analysed. These theories are shareholder theory, stakeholder theory and tinged shareholder theory. Shareholder theory is the idea that directors have a fiduciary duty to the shareholders alone and is concerned with maximising the wealthof the shareholders. The stakeholder theory argues that no one stakeholder benefits over another.

The main arguments used in the article to support the shareholder theory are that the directors fiduciary duties are to run the company in the interests of the shareholders and that this is because of one or more of the normative justifications. These include contractual relationships betweenthe shareholders and the directors. Sternberg (1994) believes that as shareholders have invested their money in the business they have ‘property rights which ought to be protected’. Boatright (1994) agrees with this but goes further to say that their property rights are protected because of their rights as shareholders, such as their right to elect the Board of Directors. Moore then goes on todiscuss the utilitarian/efficiency arguments as a support for the shareholder theory. He includes the following quote; “…corporations ought to be run for the benefit of shareholders because all other constituencies are better off as a result” (Boatright 1994). This will be ultimately beneficial because by reducing the costs of monitoring contracts the business becomes more efficient leading togreater wealth of the shareholder.

The main arguments used in the article to support the stakeholder theory are that directors owe multi-fiduciary duties to run the company in the interest of some or all of the stakeholders and that these are broader than those involved in the shareholder theory. Moore discusses that whilst the shareholder theory is restricted to legal and implied contracts,the stakeholder theory also includes social/moral as well as legal and implied contracts and that this in turn will lead to a greater wealth creation and a fairer distribution which will benefit society as a whole.

The main arguments supporting the tinged shareholder theory come from Langtry (1994). It takes an ‘instrumental’ approach to stakeholding but it allows includes the social andmoral aspects. Whilst retaining their accountability to the shareholders, the business can also take their responsibility to other shareholders seriously. Under this theory the managers would still be accountable to the shareholders alone but would also be responsible for balancing the interests of all stakeholders including the shareholders.

Word count: 399

c) The theory which is mostconvincing to me is the tinged shareholder theory. I feel it offers a good middle ground between the shareholder theory and the stakeholder theory. I agree with Langtry’s argument that the tinged stakeholder theory avoids the objections related to pure stakeholder theory such as issues over whether the business has behaved morally. This theory allows directors to still keep their accountability toshareholders in terms of maximising shareholder wealth but also allows them to take their responsibilities to other stakeholders more seriously. For example, trying to become a ‘greener’ company.

I think that the stakeholder theory; that the company is run in such a way to take into account the interests of some or all of the stakeholders is more acceptable than the shareholder theory.Around the world today businesses have a lot more factors to consider when making decisions such as behaving ethically, considering how their actions will be perceived and public image. Surely a company is more likely to benefit society as whole by acting in the interest of all of its stakeholders. However companies trading shares on the stock market would cease to exist if it were not for the…