Arguments for the Theory
Arguments for the Theory
Stockholders take risk to invest their money by establishing businesses. They deserve returns (i.e., profits) on their investment. They do not take risk to benefit any other party.
Stakeholders also benefit from those investments in a free-market economy. In such an economy, the owners of factors of production (i.e., capital, labor, land, knowledge, etc.) benefit by providing services based on those factors. Consumers also benefit because competition in a free-market economy ensure that consumers are offered high-quality goods and services at affordable prices. The government also benefit in terms of getting tax revenues to finance its operations. Governments can use their legal systems to protect the environment from the detrimental effects of business operations.
The whole society also benefits from investments made business owners; those investments increases the standard of living in the society by producing goods and services,
In a democracy, managers of businesses represent the owners of those businesses; they do not represent the other stakeholders. If business profits go to those stakeholders, this will be unnecessary taxation on those business owners. This taxation will be contrary to democracy which says that “there is no taxation without representation.”
B. Arguments against the Theory
The business corporation is a legal entity. This means that is established through a legal mechanism set up governments. As a legal entity, the corporation can sue and be sued. In other words, the corporation operates in a legal environment. One of the functions of the legal system is to resolve private and public disputes. When business operations or activities harm other parties, those parties have the right to file civil and or criminal lawsuit to seek justice. The implication here