To Shareholder or Not to Shareholder: That is the Question (or Is It?)

Should a firm create value for the owners, or should it care about the balance between stakeholders?

Shivani Gandhi
7 min readJan 4, 2022


An ongoing debate in managerial science can be expressed by the words “shareholder-value versus stakeholder-value”. In the recent past, global challenges like climate change have led to the cry for sustainability which can be regarded as the three-dimensional structure of economic, social and ecological objectives (Wall & Greiling 2011). Furthermore, the debate on shareholder- versus stakeholder-orientation was intensified by the financial crisis of 2008, making the question take on the role of a political, ethical, and economic rationality opinion.

Who are they?

Shareholders are always stakeholders in a Corporation, but stakeholders are not always shareholders. A shareholder can be an individual a company or institution that owns at least one share of a company, meaning that they have a financial interest in its profitability. Shareholders can have a say to affect the management of a company and are essentially partial owners of the company but are not liable for the company’s debts.

Stakeholders on the other hand can be owners and shareholders, employees of the company, customers who may rely on the company to provide a particular good or service, or suppliers and vendors who may rely on the company to provide a consistent revenue stream. Shareholders may be the largest type of stakeholders, because shareholders are affected directly by a company’s performance, but it has been commonplace for additional groups to be considered stakeholders. The main difference between the two is that stakeholders are often interested in the company for the long term and therefore have a greater need to see the company prosper, whereas shareholders don’t need to have a long-term perspective on the company and can sell their stocks whenever they need to, which follows a very short-term orientation (RENÉE 2011).

How does this affect company decision making?

Managerial decision-making reasonably depends on whether shareholder- or stakeholder-orientation predominates among the firm’s objectives. Managerial decision-making is affected by information — information that managers directly consider relevant for decision-making in the shareholders’ or the stakeholders’ interest and information provided to shareholders and/or stakeholders about the results of managerial decisions. Among the information affecting managerial decision-making, accounting numbers play an important role. (Wall & Greiling 2011) Directors and CEOs are more pro‐shareholder the more they endorse entrepreneurial values — specifically, higher achievement, power, and self‐direction values and lower universalism values. While employee representative directors exhibit a lower baseline level of shareholder orientation, they nonetheless often side with shareholders (RENÉE 2011).

Stakeholder orientation is a concept that is nice to have in good times but is often overruled when in times of crisis where taking short term actions that are usually harmful for long term stakeholder relations seemed to be the go-to option. For example, in the 2008 financial crisis, firms changed their management control systems towards the direction of an increased focus on profit generation, reducing autonomy of employees, and cost cutting. These would have a long-term effect on stakeholder relations but gave a short-term benefit to shareholders due to the focus on profit. Because shareholders have a primary goal of investing in a business due to profit, the entire objective is very short term which forces companies to take actions that are fruitful for the short term. In incentivizing this short-term behavior there can never be a transition to long term orientation or goals within a company. The results of this example indicate that firms significantly adjusted their management control systems towards a financial focus during crisis to ensure their survival (Wall & Greiling 2011).

Short-termism? Good or bad?

Short term orientation versus a long-term orientation is not necessarily a negative, depending on the objectives of the firm. Those that approach ethical decision making from a shareholder perspective focus on making decisions that are in the owner’s best interest, maximizing profits. These decisions are guided on a need to maximize the return for the organizer shareholders and therefore feel that ethical business practices are ones that make the most money. On the other hand, those who approach at the goal decision making from a stakeholder perspective often take the phrase corporate social responsibility into consideration. The idea behind this concept is that companies should consider the needs and interests of multiple stakeholder groups and not just those with a direct financial stake in the organization. Following this ethical approach requires considering decisions and how they impact not only stakeholders within the organization but also stakeholders outside the organization and everyone who is affected by the company’s decisions and actions. Essentially stakeholder ethical practices have the goal of ensuring that businesses decisions are benefiting all parties. While we say that one does not necessarily overpower the other, it’s essential to ensure that there are still standard ethics being practiced within both ideologies, and this is where shareholder business decisions may become unethical.

If a manager or company prioritize profit overall, then employees are likely to act in the same manner. This may lead to a mindset that states that profit should be maximized no matter what the cost is, which is not acceptable employee behavior as company leaders are responsible for setting the standards. It’s important for managers to play an active role in creating a work environment where employees are encouraged to act in an ethical manner. Therefore, if maximizing profits is the sole priority of a corporation, it is highly likely that set standards and rules are not being followed and the company is maximizing profits at the cost of stakeholders and long-term values.

When we analyze this issue in terms of time orientation, we can see that the shareholder perspective with the goal of maximizing short term profits does not practice sustainable business practices. Consequently, corporations fall into a cycle of living in the short term and trying to please shareholders rather than thinking of the long-term growth and sustainability of a corporation and its stakeholders. For example, leading up to the global recession that began in late 2000s, many financial institutions gave mortgages to borrowers who had poor credit in the hopes of making as much profit as possible in the short term. The resulting foreclosures and mass defaults eventually forced banks to absorb huge losses. At this time many businesses were partaking in illegal or unethical activities just to make profit where in hindsight the excessive focus on shareholder value led to the Great Recession. Additionally, it’s been proven that short-termism reduces business sustainability as firms are increasingly showering cash on shareholders and stripping themselves of assets that could be used for long term value creation (Fried & Wang 2021). In many cases, doing the right thing often leads to the greatest financial, social, and personal rewards in the long run and would create a secure business strategy.

While there is a significant offset in the companies that follow shareholder objectives rather than stakeholder objectives, there has been a push towards working for stakeholders.

Salesforce, an American cloud-based company based in San Francisco, has made a commitment to all stakeholders and has followed up with actions to uphold their stakeholder values.

“At Salesforce, we believe that business is a powerful and trusted platform to drive positive social and environmental impact for all stakeholders”, says Marc Benioff, co-founder of Salesforce.

In 2019, Salesforce reported initiatives in getting a tax that will help marshal the resources necessary to tackle the city’s homeless problem approved by the San Francisco City Council. Another company which utilizes the bottom of the pyramid strategy to work towards stakeholder values is Walmart. If America doesn’t help the bottom half of the income ladder, Walmart’s customers will not have enough disposable income to keep its revenue growing.

All in all, it ultimately depends on the companies’ objectives to decide which orientation they take in approaching their business. Many corporations these days are realizing that the switch from shareholder objectives to stakeholder objectives is not something that should be considered but something that should be essential in terms of long-term business growth. Short-termism only works for so long before companies start to become stagnant in terms of growth and profit. On the other hand, practicing sustainable business practices with the stakeholder in mind not only allow for the company to flourish long term but also prioritize all stakeholders, which include shareholders.


Wall, F., & Greiling, D. (2011). Shareholder- versus Stakeholder-Orientation in Managerial Decision-Making — Editorial by Guest Editors. Review of Managerial Science, 5(2), 87–90.


Fried, J. M., & Wang, C. (2021, January 29). The EU’s unsustainable approach to Stakeholder Capitalism. Retrieved May 08, 2021, from



Shivani Gandhi

What better place to share my experiences than my own blog! :) I hope y'all enjoy!