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Stakeholders in a business

5(b) Discuss the view that a public limited company should prioritise the aims of its shareholders rather than those of other stakeholder groups. [12] Paper 13

Shareholders are the owners of public limited companies, and since the 70’s the argument from libertarian thinkers like Milton Friedman has been that PLC’s ultimate responsibility is their owners. Shareholders have invested capital in the business, without their capital the business could not function. Futhermore, shareholders have taken a risk that the business will be profitable in the long term, therefore they should be rewarded through high annual dividends and by long term growth in the share prices. As we have seen with the recent collapse of Thomas Cook and Wrightbus, if a company goes into liquidation the shareholders lose all of their stake in the business. Shareholders argue that as they finance a company they are the most important stakeholder and their aims should therefore be prioritised.

However, other stakeholders (groups who are impacted by the PLC’s decisions) should also be considered in business decision making. Internal stakeholders like employees and managers should not have bad pay or working conditions just to make sure that shareholders have higher profits. Pilots at British Airways went on strike to demand higher pay and a greater share or companies profits as they saw themselves as crucial to the companies success.

Customers (another stakeholder) in gas and electricity companies have complained that they are forced to pay higher prices just to maintain profits for shareholders in utility companies. This raises questions of business ethics if poorer customers are pushed into poverty as they must pay higher prices to heat their homes.

Furthermore, the local community are also stakeholders and can be hugely negatively impacted in a firm pollutes. Oil companies like Shell and BP may have cut costs to protect profits for shareholders, leading to insufficient safety procedures to protect the local community from oil spills.

Therefore, there is a strong case that PLC’s should not prioritise shareholders above other stakeholders if this means their activity will have a negative impact on the people or the environment. The US Business roundtable, which represents the top US PLC CEO’s, this year changed their purpose of a corporation from making profits for shareholders to improving society, protecting the environment and acting ethically. In reality, to change the prioritisation of shareholders to other stakeholders will require a huge reform of corporate governance. PLC’s are currently accountable only to their shareholders. But companies like Unilever have shown that PLCs can balance the need to reward shareholders and act responsibly to other shareholders.