Stockholder theory

The stockholder theory states that stockholders advance capital to corporate managers who act as agents in advancing their interests. This theory was forwarded by Milton Friedman, who was quoted saying, "There is one and only one social responsibility of business: to use its resources to engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud." This can be found in M. Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962) p. 133.

The idea of the stockholder theory, some argue, is inconsistent with the idea of corporate social responsibility at the cost of the stakeholder. For example, a company donating services or goods to help those hurt in a natural disaster, in some ways, may be considered not taking action in the best interest of the shareholder. Some may argue that goods provided to society in a time of need builds further allegiance to a corporation and in theory, meeting the stockholder theory's requirement to look in the best interest of the stockholder.

See also Social Contract Theory