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Friday, 11 December 2015
The shareholder's theory stipulates that agents of a company (managers) should only aim at increasing shareholder's wealth. However, the stakeholder's theory came around and challenged the shareholder's theory. This theory states that the needs of all stakeholders must be taken into consideration. Stakeholders include the shareholders, managers, employees, creditors, government and the community at large. There are times when the need of one stakeholder might conflict with the need of another stakeholder.
Mendelow theory has dealt with such challenges. The theory suggests that stakeholders should be classified into four groups and this should be based on their power and interest in the company. Stakeholders with high interest and high power must be treated carefully, the stakeholders with little power but high interest in the company should be kept informed because they have the ability to influence more powerful groups. The group that has high power but are not really interested in the company should be kept satisfied. For those with little power and little interest in the company they require minimal efforts.
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