Negatives Stake holder Stake holder The primary problems is that it fails to deal with the problem of balancing the potential conflicting interests of all different constituencies. Even so, there is no way for the stakeholder to claim for any failure on the part of the directors moreover there is no clear boundary for the stakeholder groups to be considered by a company, the problem has been addressed that a company being accountable to everyone is actually accountable to no one.

Problems with Stakeholder theory Determining the stakeholders Under stakeholder theory, outside interests should be determined exogenously, i.e., irrespective of the views of the company board or management. It is not clear how this can be achieved nor how the range and variety of such groups can be legitimately identified. How are the company's and the stakeholder group's mutual rights and obligations determined?

Different stakeholder groups will not share common commercial purposes. Some may want a company to grow, some to maintain its present size, some may want it to be taken over and some may want it to fail. The purposes of a company may be frustrated, or at least confused, by management's adoption of multi-fiduciary policies their for maximizing shareholder value is for all interest of the entire business.

Success Success must be related to purpose. When we talk of a company being successful, we may be using the company's criteria, our own or some combination. The implication of stakeholder theory is that society, rather than the company, can determine what constitutes success, to the possible frustration of corporate efforts. Percy (1944, p 42) pointed out that "when a well is drying up, its yield cannot be stimulated by a change in the ownership of the bucket or the rope". More importantly, disputes about the rope, bucket or the output are likely to distract participants from the reality of creating a greater source of water.

Stake holder approach Includes Creditors interest – This enables duties to shift from shareholders to creditors under circumstances. For instance a company is insolvent or even doubtfully solvent, the interests of the company are in reality the interests of existing creditors alone. It is also that directors ought to consider the interests of creditors in making decisions when the company is in times of financial difficulty. In conclusion creditors interests will become paramount only where the company is insolvent or nearing insolvency. Therefore it is unlikely that the interests of creditors would be an exclusive focus of the company under normal situation and directors duties are likely to protect rather than to promote their interests.

Stake holder approach Employees interests – Employees in a way have a interest in the business as they work and contribute, skills and knowledge at present in receipt of benefits such as pension provided by the company in the future. Human capital is often regarded as a investment of the company. As a result directors should consider the interests if employees in the sense that they are a key group of stakeholders who can promote competence and enhance sustainability of the companies they worked for.

Stakeholders approach Customers interest. – Customers interest should not be neglected by the directors because they are extremely important assets of the company. – For example: Toyota un the us automble markets. As the us automotive markers failed to meet the changing consumer demands by continuing to produce large and fuel in efficient autmotives. Consumers eventually swiched to smaller and more fuel efficient japanese models. This has made toyotas market value worth more than twice the combined market value of the big three us automobile makers in the year in conclusion customers constitute an important stakeholder group for a business as they are crucial to keep a business running.

Stake holder Approach Stake holder groups such as the supplier also have intrest in a business. Theyt will make some sort of firm specific investments for the needs of a particular customers. They are likely to share the surplus generated by the company. For the suppliers are crucial factors of a businesses production and it is important for bussinesses to establish stable trading relationships within the supply chain. Apart from that companies are considered to have a “Social Responsibility”. As share holder decisions may affect the community at large. In conclusion interests of the community should be recognized in their commercial activities.

Shareholder Approach The shareholder fiduciary duty is to maximize share holder wealth. This concept has been proved to work in companies such as dodge vs ford motor company. This provided the primary legal support for shareholders fiduciary duty. Directors should be obligated to act exclusively in the interest of shareholders, which is also regarded as the substance of the corporate fiduciary duty. In general there are three major arguments that prove shareholder value.

Share holder approach Primary argument Shareholders are the residual claimants when the company is solvent. It is believed that a company should be accountable for the benefit of the residual claimants, as shareholders being the equity investors are the “greatest state in the outcome of the company. They may benefit from the company's surplus, but also bear a greater risk thank other constituencies as their interests are not protected by contracts under most circumstances. Thus they should be given the right to control above other stakeholders because their interests are associated with every decision they made for the business. Unlike share holders, non shareholder constituencies are better protected by legal mechanisms like contract law, rather than an involvement in corporate governance.

Share holder Approach Secondly – This helps reduce the agency costs. Under the agency theory it is know that the agent namely the directors should act on behalf of the shareholders interests in running the business of a company. However, in the absence of the shareholder primacy it is likely that the directors will shirk their duties and agency costs will be incurred to monitor their work so as to prevent their abuses in positions. In order to reduce the agency costs the effective way it to uphold the shareholder blue that directors are made accountable to shareholders interests.

Shareholder Approach Finally – Directors can make better corporate decisions if they are focused solei on shareholders interests. As if directors owe duties to other non shareholder constituencies it would not be possible for them to balance all of the diverging interests. It is incapable for the court to formulate and enforce fiduciary duties to ensure that the directors act fairly and make decisions more efficiently in the interests of all stakeholders. Hence the shareholder primacy model is absolutely more certain and easier to administer as compared with a stakeholder approach.

Share holder approach focuses on implementation but neglected justification.