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management due to dispersed ownership. 49 In addition, the theory only benefits
shareholders and does not increase social wealth as a whole. 50 For example, in order
to increase shareholders‟ wealth, the company may decide to invest in a project
which may endanger the ecosystem or may result in the business‟ closure. 51 In
addition, shareholders are not the only group affected by the company‟s fate, for
others such as creditors, employees, customers and communities have also invested
in the company‟s well-being. As such, it defeats the proposition that shareholders‟
interests merit protection because they are residual claimants.
6.3 Stakeholders Theory
Over time, various factors such as the development of new production processes,
new technologies, demographic factors, and social and political forces have resulted
in changes in corporate structures. 52 These changes caused other players, apart from
shareholders, to become an integral part of the companies and have become more
influential than their traditional role. 53
Traditionally, these stakeholders are considered as outsiders and would be able to
negotiate favourable terms in contracts in order to protect themselves. 54 These
49 Berle and Means above n10 at 67.
50 John Parkinson Corporate Power and Responsibility (Clarendon Press, Oxford, 1993) at 272.
51 Ibid.
52 R. Edward Freeman Strategic Management: A Stakeholder Approach (Pitman, Boston, 1984) at 5.
53 Ibid.
54 See Paul Halpern, Michael Trebilcock and Stuart Turnbull “An Economic Analysis of Limited
Liability in Corporation Law” (1980) 30 Uni. Toronto LJ 117 at 139-145; Frank H. Easterbrook and
Daniel R. Fischel “The Corporate Contract” (1989) 89 Columbia LR 1416 at 1428-1434; Frank H.
Easterbrook and Daniel R. Fischel “Limited Liability and the Corporation” (1985) 52 Uni. Chi.L.R
89 at 104-107; Ramsay above n34 at 522-523.
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