Stockholders, stakeholders, & the law ► Smith Manufacturing Case (New Jersey); 1953  Corporate contributions to Princeton University  Broader Issue: Can the board of directors take earnings that "belong" to shareholders and use them to contribute to the "public good" ► Decision: YES

STAKEHOLDER THEORY ► Based upon the principle of corporate effects:  The corporation and its managers are responsible for the effects of their actions on others.  Including but not limited to shareholders

Stockholder Theory ► Corporation exists to maximize shareholder wealth ► Milton Friedman:  Social responsibility of business is to increase its profits  Following the law and not acting with fraud or deception  Social issues should be left to the government – not corporations