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COMM 104 (45)
Chapter 5

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Department
Commerce
Course
COMM 104
Professor
Karen Humphreys Blake
Semester
Winter

Description
Chapter 5­ Critiques of Stakeholder Theory • Primary critiques of stakeholder theory come from the perspective of shareholder  theory, or the theory of the firm  • Fiduciary responsibilities refer to the duties of corporate executive to maximize  the value of the firm through increased earnings, market share, or some other  financial standard Shareholder Theory: Historical Background th • Emerged from the rise of corporations in the late 19  century  • Fiduciary responsibility was legally imposed on corporate management to  overcome the principle­agent problem  o Agents, such as lawyers and managers, having more knowledge and power  than the principals who engage their services o Given that managers had very significant advantages over day to day  knowledge of operations, they were charged with maximizing profits for  shareholders to prevent them from exploiting these asymmetries to their  own advantage • It became popular because corporate managers realized that managing these long­ term stakeholder relationships successfully worked to the shareholder’s benefit The Nexus­of­Contracts View: • Legal restrictions made it hard for stakeholder theory to get off the ground • “Nexus of contracts theory”: the strict reading of a corporation’s responsibility to  shareholders defined 
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