What is the impact of shareholder theory on corporate governance?

What is the impact of shareholder theory on corporate governance?

Shareholder theory suggests that a company's primary responsibility is to its shareholders, focusing on maximizing their value. This can lead to prioritizing short-term profits over long-term sustainability.

How does this theory affect decision-making in companies?

It often results in decisions that favor immediate financial returns, which can sometimes overlook ethical considerations or the interests of other stakeholders like employees and customers.

Are there any criticisms of shareholder theory?

Yes, critics argue that it can lead to short-sightedness and neglect of social responsibilities, potentially harming the company's reputation and long-term viability.

What alternatives exist to shareholder theory?

Alternatives include stakeholder theory, which emphasizes balancing the interests of all stakeholders, including employees, customers, and the community.

Can you give an example of a company that follows stakeholder theory?

Sure! Companies like Patagonia and Ben & Jerry's are known for prioritizing social and environmental concerns alongside profit.