Much of the public attention of the world in the early years of 21st century had its origin in the failures within the significant multinational companies like Parmalat and Enron. This have evidenced that the functioning of elements of the late 20th century’s corporate governance models are dependent on increasing the interests of the shareholders and this was the main reason behind their failure (Soltani 2014). However, there are certain evidences and examples that could clearly alter this vague belief. This paper would provide a brief on evaluating the evidences that the responsibility of any company’s director is to place the interests of the shareholders above the interests of the stakeholders. It shall be providing some evidences, examples and recommendations for the part of company directors which would guide them in making board decisions so they are responsive to diverse the stakeholder audiences.
Corporate governance by means of protecting a wide set of interests are regarded as a way of conducting Corporate Governance. Taking stakeholder’s interests into consideration is often considered to be recent in development and Freeman is basically cited as its landmark (Strand and Freeman 2015). It is to note that in the recent years, the scholars have noted that there is an increase in the “shareholder primacy” or the value of the shareholders as a major aspect in the field of corporate governance. As per the argument, it is suggested that under some kind of capitalism and especially, which is characterised as “market based” instead of “relational” style of the production systems, the shareholders’ interests are often considered to be the paramount by the directors over those of the other stakeholders like the employees working in the organisation. This means that directors need to favour the short term financial interests of the shareholders.
The responsibility for the restructuring of the corporate as well as the work reorganisation ultimately lies within the directors of the company and their task is to make a setting of the strategic direction of business for the business growth and development. According to “Shareholder primacy”, the corporation is regarded to have formed from the notion that the directors are importantly the representatives for all the shareholders and they are consequently under a key obligation for managing the company in interest of the shareholders (Smith and Ronnegard 2016).
There are certain scholars who are against the idea that of shareholder interest model (Bezemer et al., 2015). They have asserted that the customers, the employees and the quality of the products deserve more priority than the shareholders. In other words, stakeholders’ interest should be kept over the interests of the shareholders. However, it was not a choice in between the customers, employees and the quality of product versus advancing the interests of the shareholders. However, the attention to them in an unhampered market is the source of advancing the shareholders’ interests. The share prices demonstrates the gains from utilising and motivating the talents and skills of the employees in better ways right from developing and serving the customers and from improving the quality of the products that the users these days, value much more than the cost (McKnight et al., 2017). All the interests of the stakeholders are grounded from their rights of property as well as the requirements of the voluntary, the mutually advantaged cooperation are all aligned with the ones of the profit-seeking shareholders. Hence, it is to state that the other valid interests of the stakeholders are all reflected by the interests of the shareholders and are not at all trampled by them. The employees and the workers who are working in the organisation have to agree to their terms of employment. So the companies would regard each and everything that the workers or the potential future workers care about for serving the potential for an advantageous change in the context of employment.
For more example, consider the way how the professional teams in sports consider the fans. It is for sure that these teams are much more interested in the making of huge profits and therefore, they care more about the ones who go or might go to games and any other factors, which might influence their decisions. With the same, they also care about the ones who buy or might buy the hats of the teams, the jerseys etc. as well. In the same way, they also care about the ones who do nothing but talk regarding the team at their work as by means of this the revenue generating behaviour of others could be influenced. These types of fans need no direct power over the decisions of the team so as to have their desires to be reflected in the decisions.
As per Busse (2016), most of the interests of the stakeholders are consistent with the advancing interests of the shareholders, comprising of the suppliers, the workers, customers or fans. These are all incorporated in the interests of the shareholders as they might be induced for cooperation on a mutually consented terms. If this thing was what all the stakeholders’ claims demonstrated, the shareholders would not object to the claims of the stakeholders. Those claims need imposing the decisions of someone else’s in the place of the decisions of the owners in involuntary way that needs coercion against them (Burns 2015). With the same, even though the “benefit corporations” can now be formed to advance the specified stakeholder interests and the shareholder interests, they have still remained uncommon, because of the problems in finding investors who agree both on their desires for advancing the same stakeholder interests and the trade-offs that they are willing to make in between those ends and the profits. This would have not been the case if the approach of the stakeholder was generally superior in the eyes of the ones whose rights are involved.
The coercion that is required for imposing the obligations of the stakeholder in the violation of the property rights of the shareholders in turn explains that why the stakeholders of an organisation turn to the actions of the government or legal threats for advancing their claims (Andriof et al., 2017). In such conditions, the ability of the stakeholders to exercising political clouts over the decisions made by the government could be more effectively used for extorting the companies such as in the case of banking sector.
It is to mention that the attempts of the stakeholders in leveraging new power are asymmetrical in nature. The stakeholders who claim that they should be provided with a say in the decision making process of the company do not propose granting the outside rights of the stakeholders to same kind of affects over their actions (Sikhhavica and Hillman 2015). If the groups of community are to be given the power to dictate the choices made by the firms as they are stakeholders then the firms too should have similar powers over these groups decision making process as they are also the substantial stakeholders in a community. If the current workers in a firm should have the power of decision making on the behalf of the entire firm as of their stake in the firm’s policies then the firm too should have similar power of decision making over those workers. This is because just as workers have a stake in not having their pay cut, the company that employs these workers too has a stake in ensuring that the pay of the workers is not being jacked up.
It is also to note that the stakeholder theory wipes out the cleat criteria of profitability in order to evaluate that managers rather than substituting the equivocal and the mutually incompatible criteria with no other way of demonstrating the trade-offs that are agreed-upon. As this would serve that shareholders in poor way, it would also often serve the managers’ interests who would see their constraints to be eased. This is one of the main reason why most of the managers support this approach. As stated by Bhaduri and Selarka (2016), this allows the managers to survive poor management and inefficiency in the workplace and the organisation and at the same time, it also diametrically opposed to what reason the shareholders had hired them. With the same, it also gives them the potential and the power to be regarded as philanthropists or business statesman in the whole process.
As per the shareholder theory, “Shareholders provide the capital for keeping the company going”. Therefore, increasing the wealth of shareholders means increasing the flow of the dividends to the shareholder through time. For a long lasting perspective, increasing the value of the shareholder increases the firms’ value. Shareholders play a very important role in the deliverance of the company’s value although they are not that one and only constituent. For example, for the AICD, shareholders are the real investors. As such, they need to serve them with right data and information, in right quantity and at right time so that they could correctly judge and give out proper solutions and decisions. The shareholder theory offers the rule for decision making for the directors and the managers in order to guide them towards ethical achievement for increasing the value of the shareholders and that too for the huge number of stakeholders.
Conclusion
Hence from the above discussion it is clear that the shareholders hold the maximum importance. It is to state that the control of the shareholders on corporations follows from the private property rights as well as the needs that the assigned representatives perform in systematic manner their contractual commitments. It derives from the liberty and self-ownership in the economic arrangements. The companies, as the agents for the shareholders need to live to their agreed contractual obligations to the stakeholders like the employees, customers, owners and the suppliers. As an outcome, they all are benefitted from such arrangement. With the same, the sole obligation of a company to others as per Mulhall (2018) is “the one we all have to each other: to refrain from threatening or engaging in initiatory violence against them and their rightfully owned property.” Therefore, Okerson (2017) have described the claims of stakeholders as “the entering wedge of yet another attack on private property rights.”
References:
Andriof, J., Waddock, S., Husted, B. and Rahman, S.S., 2017. Stakeholder responsibilities: lessons for managers. In Unfolding Stakeholder Thinking (pp. 137-154).
Bezemer, P.J., Zajac, E.J., Naumovska, I., van den Bosch, F.A. and Volberda, H.W., 2015. Power and Paradigms: The D utch Response to Pressures for Shareholder Value. Corporate Governance: An International Review, 23(1), pp.60-75.
Bhaduri, S.N. and Selarka, E., 2016. Corporate Social Responsibility Around the World—An Overview of Theoretical Framework, and Evolution. In Corporate governance and corporate social responsibility of Indian companies (pp. 11-32). Springer, Singapore.
Burns, A., 2015. In full view: Involuntary porn and the postfeminist rhetoric of choice. In Twenty-first century feminism (pp. 93-118). Palgrave Macmillan, London.
Busse, C., 2016. Doing well by doing good? The self?interest of buying firms and sustainable supply chain management. Journal of Supply Chain Management, 52(2), pp.28-47.
McKnight, D.H., Lankton, N.K., Nicolaou, A. and Price, J., 2017. Distinguishing the effects of B2B information quality, system quality, and service outcome quality on trust and distrust. The Journal of Strategic Information Systems, 26(2), pp.118-141.
Mulhall, S., 2018. The Well Is Not the World: William Golding’s Sense of Reality in Darkness Visible. In Philosophy in the Condition of Modernism (pp. 325-354). Palgrave Macmillan, Cham.
Okerson, A.S., 2017. Buy or lease? Two models for scholarly information at the end (or the beginning) of an era. In Books, Bricks and Bytes (pp. 55-76).
Sikavica, K. and Hillman, A.J., 2015. Since the work of Berle and Means (1932), organizational scholars have rec-ognized that the interests of “owners” of a firm may differ from those of man-agement. Agency theory research has a long tradition of focusing on these potentially different interests (eg, Eisenhardt, 1989; Fama & Jensen, 1983; Jensen & Meckling, 1976). Scholars also recognize that “owners” can be. Shareholder Empowerment: A New Era in Corporate Governance, p.35.
Smith, N.C. and Rönnegard, D., 2016. Shareholder primacy, corporate social responsibility, and the role of business schools. Journal of Business ethics, 134(3), pp.463-478.
Soltani, B., 2014. The anatomy of corporate fraud: A comparative analysis of high profile American and European corporate scandals. Journal of business ethics, 120(2), pp.251-274.
Strand, R. and Freeman, R.E., 2015. Scandinavian cooperative advantage: The theory and practice of stakeholder engagement in Scandinavia. Journal of business ethics, 127(1), pp.65-85.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download