Final answer:
Shareholders own parts of a public company and expect returns on their investment, while stakeholders include a broader group such as employees and customers. A company's board of directors, elected by shareholders, is responsible for making key decisions. The debate continues in the business community regarding the prioritization of the interests of shareholders, employees, and customers.
Step-by-step explanation:
Shareholders, also known as stockholders, are individuals or entities that legally own one or more shares of stock in a public company. They invest capital with the expectation of receiving a positive return on their investment when the company is profitable. Friedman's principle argues that the company's primary responsibility is to its shareholders, to generate maximum returns on their investment. However, there is an ongoing debate about the broader responsibilities of corporations, including moral responsibilities to various stakeholders, which not only include shareholders but also employees, customers, and the broader community.
When a company is owned by a significant number of shareholders, a board of directors is elected to make key decisions. This board hires executives to manage the day-to-day operations of the firm. Shareholders exercise their influence through votes, with the amount of stock owned proportional to the number of votes an individual shareholder can cast.
In the context of meeting the needs of shareholders, employees, and customers, it is up to the company's leadership to balance these interests effectively. Companies often struggle with the order of priority among these groups; whether to prioritize shareholders for their investment, employees who run the operations, or customers who drive the revenue. Some argue for a stakeholder-centric approach, putting employees and customers first as a means to ultimately satisfy shareholders as a result of improved company performance.