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players‟ interests intertwine with one another with each contributing to the success of
the company. In order to ensure the overall success of the company, the management
should take into consideration the interests of various key players in the company,
and not concentrate on a particular group, hence the emergence of the stakeholders‟
theory. In other words, directors are allowed to prioritise the interests of one group of
stakeholders over the others as long as it is for the long term benefit of the
company. 55
The stakeholders‟ theory rests on the theory of organizational management and
ethics requiring management to reflect the interests of those whose contribution
results in either promoting or frustrating the company's objectives. 56 It asserts that
maximising shareholders‟ wealth is no longer suitable in the modern corporate
structure since shareholders are not the only bearers of residual risks. 57 Discussion on
this issue has intensified with the current development of industrial relations, as well
as economic theories. 58 Moreover, it also reflects the progressive and effective means
of corporate governance, since it involves considering the interests of various groups
which form part of the company as well as the benefits that accrue to society as a
whole.
Freeman refers to stakeholders as groups of constituents who have legitimate claims
on the firm, established through the existence of an exchange relationship and each
can be seen as supplying the corporation with critical resources. 59 They are
55 Helen Anderson “Creditors‟ Rights of Recovery: Economic Theory, Corporate Jurisprudence and
the Role of Fairness” (2006) MULR 1 at 24.
56 Robert Phillips Stakeholder Theory and Organizational Ethics (Barret-Koehler, San Francisco,
2003) at15-16.
57 Kelly and Parkinson above n5 at 122.
58 Andrea Corfield “The Stakeholder Theory and its Future in Australian Corporate Governance: A
Preliminary Analysis” (1998) 10 Bond L.R 213 at 213.
59 Freeman above n52 at 25; Charles W.L. Hill and Thomas M. Jones “Stakeholder-Agency Theory”
(1992) J. Manage Studies 131 at 133.
129