Please read carefully the two pieces on Niihka and noted on the syllabus: the

Milton Friedman article and the Ed Freeman article and write a 4-6 PAE!
reaction paper" A reaction paper has two parts: #$ synopsis% or in this case% two
synopses of the pieces& '$ the si(nificance of each piece" For this assi(nment a
third section needs to be added: a compare and contrast of the two pieces as
well"
F)EEMAN
A !takeholder *heory of the Modern +orporation
)" Edward Freeman
!cholars and mana(ers belie,e mana(ers ha,e a special relationship to
stockholders in the firm"
!tockholders own shares in the firm (i,in( them certain ri(hts and pri,ile(es"
many practices% myths% and rituals reinforce the assumption of the stockholder
bein( hi(hly important and that a mana(er must ha,e a duty toward a
stakeholder
!-N-F-+AN+E: *he si(nificance of this article is to (i,e se,eral challen(es to
the assumption that many practices% myths% and rituals reinforce the
assumption of primacy of the stockholder" Also its si(nificance is to su((est an
alternati,e theory" *his theory is about the modern corporation and its
transformation" *he author.s si(nificance in writin( the paper is in attempt to
break the myth that mana(ers ha,e a duty to stakeholder and chan(e it to they
should /ust be trustin( toward the stakeholders" *he si(nificance is to look into
depth of at whose e0pense and at whose benefit should the firm be mana(ed"
!i(nificance was to state that the authors ,iew on the purpose of the firm is
much different than the stakeholder theory states"
!takeholders are (roups who ha,e a claim in the firm"
Each (roup has a ri(ht to be treated fairly and must participate in determinin(
when the firm is headed that they ha,e a stake in"
Mana(erial capitalism- idea that in return for controllin( the firm% mana(ement
pursues the interests of the stockholders"
Mana(ement can make market transactions with suppliers and customers in any
manner
the law of corporations states that corporations should be run primarily in the
interest of the stockholders in the firm
A new law has held back the stockholders interests and re1uired that claims of
customers% suppliers% local communities% and employees need to be
considered% but they are usually still subordinate to the claims of the
stockholders"
-n dealin( with mana(ement of employees% the National 2abor )elations 3oard
(i,es employees the ri(ht to form a union"
Also ha,e E1ual payin( acts and A(e discrimination acts
Also ha,e clean air and clean water acts
Mana(er capitalism states that a firm should be mana(ed in the stockholders
interest and benefit but that the law has been hidin( the answer"
!ince e,ery firm belie,es that if they are the only ones to take action in
impro,in( the en,ironment it will ha,e ,ery little effect so no firms take action
and the result is pollution"
Firms will try to monopoli4e small portions of the market and try not to
compete with one another- this is called oli(opolies"
E0ternalities% moral ha4ards and monopoly power ha,e led to more e0ternal
control of mana(erial capitalism"
!takeholders benefit5are harmed by corporate actions"
!takeholder ha,e a ri(ht to make claims /ust as stockholders can demand
certain actions by mana(ement"
!takes re1uire actions and conflictin( stakes re1uire methods of resolution"
!takeholders are ,ital to the sur,i,al and success of a corporation and can
affect or be affected by a corporation"
+6)P6)A*-6N 7A! MAN8 !*A9E! all which can be affected and affect the
company: mana(ement% local community% customers% employees% suppliers%
owners
6wners ha,e financial stakes in the corporation ;stocks% bonds$ and e0pect a
financial return from them" *he firm can affect their li,elihood ;retirement
income$
!takes of owners will be different dependin( on money and moral preferences
Employees ha,e their /obs and li,elihood at stake" *hey e0pect in return for
labor security wa(es benefits" E0pected to speak well about company and ha,e
appropriate beha,ior in the community"
!uppliers are needed for their raw materials and effect the final product.s
1uality and price" *he firm is a customer to the supplier and is ,ital to the
suppliers success" *he supplier will respond when the firm is in need more
likely if the firm treats the supplier as a ,alued member of the stakeholder
network" *he supplier and company can rise and fall to(ether"
+ustomers (i,e money for the firm.s product and in return recei,e the benefits
of the products" +ustomers are the firms main form of re,enue" +ustomers
indirectly pay for the de,elopment of new products and ser,ices" +ustomer
ser,ice is important and leads to success with other stakeholders"
2ocal community allows firm to build facilities and then benefits from the ta0
base5economic5social contribution of the firm" *he firm is e0pected to be a
(ood citi4en and cannot e0pose community to pollution% to0ins% etc
+ompetitors and (o,.t are also helpful to sur,i,al and success of a firm
Mana(ement has a stake in the modern corporation" Mana(ement must look
o,er the health of the corporation" 6wners want hi(h financial returns"
+ustomers want more money spent on )<=" Employees want > wa(ers and
better benefits and local community wants parks and daycare facilities"
Mana(ement must keep the relationships amon( stakeholders in balance"
*he stakeholder theory says purpose of the firm is to ma0imi4e welfare of
stockholders"