MGMT1021 Lecture Notes - Lecture 5: Efficient-Market Hypothesis, Corporate Social Responsibility, Stakeholder Theory
11 Jun 2018
School
Department
Course
Professor
April 19: Organization and Society
- There are two opposing perspectives on the relationship between business
organizations and society, and the reality may be more complex than simple dichotomy.
What are the four lessons from social movements that help your social innovation with a
company? Explain each lesson and describe how each of them specifically guides
intrapreneurial actions
Two Perspectives:
Corporate Governance: “ the whole set of legal, cultural and institutional arrangements
that determine what publicly traded corporations can do, who controls them, how that control is
exercised and the risks and returns from the activities they undertaker are allocated”
Shareholder Exclusive View:
- Theoretical background : agency theory, contractarian view
- Efficient market hypothesis
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- Theses:
- Firm is nexus of economic contracts: a firm is constituted by a series of bilateral
contracts
- Because shareholders are residual claimants of firm, maximizing shareholder
value automatically maximizes payoffs to other stakeholders
- Informationally efficient stock market provides an accurate estimate of current
and future shareholder payoff
Milton Friedman:
- Individuals, not corporations have responsibilities
- The primary responsibility of corporate executives is to the owners ( shareholders)
whose primary interest is maximizing profits
- Other ‘responsibilities’ pursued by executives that do not aim to increase profits are a
form of ‘taxation without representation’ or veiled socialism
- Corporations specifically designed to pursue solutions to social problems may pursue
such goals
But to require for profit corporations to use their returns to pursues solutions to social
problems would require extend the political mechanisms into the corporate sector
Stakeholder Inclusive view:
Theoretical background:
- Stakeholder theory: firms are not a series of bilateral contracts, but constituted by
one complex multilateral contract. Payout to 1 stakeholder is interdependent on
another stakeholder
- Stakeholder power perspective
Theses:
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
There are two opposing perspectives on the relationship between business organizations and society, and the reality may be more complex than simple dichotomy. Explain each lesson and describe how each of them specifically guides intrapreneurial actions. Theoretical background : agency theory, contractarian view. Firm is nexus of economic contracts: a firm is constituted by a series of bilateral contracts. Because shareholders are residual claimants of firm, maximizing shareholder value automatically maximizes payoffs to other stakeholders. Informationally efficient stock market provides an accurate estimate of current and future shareholder payoff. The primary responsibility of corporate executives is to the owners ( shareholders) whose primary interest is maximizing profits. Other responsibilities" pursued by executives that do not aim to increase profits are a form of taxation without representation" or veiled socialism. Corporations specifically designed to pursue solutions to social problems may pursue such goals.
