Donaldson and Preston provides conclusive defense for stakeholder theory over Friedman's shareholder theory. Friedman's shareholder theory states that a corporate executive should use all legal and moral means to promote the means of the shareholders (P. 211-212). In other words, Friedman is saying that the executive or manager should act solely on the want of the owners (shareholders) of the company (P. 211-212). For example, a corporate executive may feel that it is his duty to give to his local church. The executive withdraws $1,000 a month from his corporate credit card and donates to his church. According to Friedman, he is wrong because although the executive's intentions are good, the means by which he gave (taking from the shareholder's owned business) is wrong. This example of the executive is the same as a babysitter selling off a family's furniture and giving the money to charity. The babysitter's intentions are good but he or she wrongly used the owner of the home's property to do it. Freidman says that people, not businesses, have an obligation to society and that obligation should not overlap (P. 211-212). In other words, social responsibility is a responsibility for the individual and the individual should not use other people's means (the shareholders' owned business) to fulfill social responsibility (P. 211-212). .
Donaldson and Preston's stakeholder theory says that an executive should balance the needs of all stakeholders (P. 83-85). A stakeholder is anyone that is affected by a company's actions (Donaldson and Preston, 1995, P. 83-85). So in other words, executives need to consider not only the needs and wants of the shareholders but the needs and wants of the customers, employees, and any other group that could be affected by the business. Donaldson and Preston state that the social obligations of the shareholders are transferred to the executive (P. 83-85). So, the executive of a corporation can use the corporation's money to fulfill the investor's social responsibility.
