ACC03043 Corporate Governance: Balancing Stakeholder Interests

This report delves into the multifaceted realm of corporate governance, emphasizing the crucial roles of shareholders and stakeholders in organizational success. It begins by highlighting the significance of shareholders as primary investors and owners, detailing their financial contributions and influence on company operations and governance. The report then broadens its scope to encompass stakeholders, including employees, suppliers, customers, and the community, illustrating their vested interests and their impact on a company's overall well-being. It explores the implications of prioritizing shareholder interests exclusively, such as short-termism and manipulation of stock prices, while also underscoring the need for a balanced approach. The report concludes by advocating for a governance model that considers the diverse needs of all stakeholders, emphasizing that shareholder value maximization is a result of responsible business practices, not an end in itself, thus ensuring the long-term sustainability and ethical operation of the organization. The report also provides a comprehensive analysis of the need of the companies to look into the interests of the other stakeholders has been made.

Running head: CORPORATE GOVERNANCE
Corporate Governance
Name of the Student
Name of the University
Author note

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Table of Contents
Introduction:...............................................................................................................................3
Shareholders and their importance:............................................................................................3
Stakeholders and their importance:............................................................................................5
Importance of stakeholders towards a business organisation:...............................................6
Implications of looking solely into shareholder’s interests:......................................................7
Need for striking the right balance:............................................................................................8
Conclusion:................................................................................................................................9
References:...............................................................................................................................10

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Introduction:
One of the most important aspects of any good corporate governance and
responsibility includes the faith and the trust which has been entrusted on the board of
directors of any company, by its stakeholders. It is this fiduciary relationship between the
board of directors and the different stakeholders, which sets out the tone of a good corporate
governance. It has been the ideology from the very beginning that any company and its board
of directors must focus their importance and attention to the shareholders of the company.
This ideology has lost its sheen in the past couple of years. Due to the rising number of
corporate problems, financial scams, corruption cases, fraudulent and money laundering
activities, the faith of the different non-financial stakeholders such as the society in general,
the government, the local communities, the employees as well as the suppliers has taken a
sever hit. The primitive ideology of looking solely into the interests of the shareholder’s
interests has led to the problems of overlooking the different needs and requirements of the
other stakeholders. Through this report, a comprehensive analysis of the need of the
companies to look into the interests of the other stakeholders has been made.
Shareholders and their importance:
One of the most important assets for any business organisation the amount of funds it
has at its disposal. The amount of funds helps it to perform in an effective and efficient
manner. Adequate funds also help the company in bailing it out at times of financial
emergency. Thus, the importance of funds cannot be downplayed (MIT Sloan Management
Review 2018). There are various ways for arrangement of funds, issuing shares is one of
them. It is regarded as one of the most effective ways of raising long term funds. The amount
of funds is collected by issuing shares in the name of the company in the stock market. The
total amount of capital is divided into smaller denominations, which are purchased by

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individuals in the market. These individuals buy all these shares of the company and led their
money to the company in return for some dividend and returns, voting rights and other
benefits. They are regarded as the owners of the company. The amount of shares held by
each of the members represent their ownership, their decision making powers, liability and
their decision making powers. These shareholders can either be an individual, group of
people, or a partnership a company, or any other kind of a corporate body. Being the
beneficial owners of a limited company, they are not only involved in daily affairs and the
management or financial dealings. These duties are the responsibilities of the directors. Their
importance in the organisation, is of paramount’s importance. They are one of the most
important aspects of any organisation. They play a major role in the organisation in the
following ways:
 Financing: One of the most important roles which the shareholders play in an
organisation is the role they play in the financial aspect of the organisation. They help
in financing the short term and the long term operations of the company. In return for
ownership of the company. They help in raising the financial assets of the company in
the form of equity shares, preference shares. In return the company is expected to
provide certain kind of benefits and returns in the form of dividends at periodic
manner.
 Company Operations: Shareholders who are also the part owners of the company,
play a major role in the day to day affairs of the business. They elect the directors of
the company, appoint supervisors and senior officers, including the Chief Executive
Officer, Chief Financial Officer and always expect the company to grow at a healthy
pace, which would eventually lead to better returns in the form of dividends.
 Governance of the company: Shareholders play a vital role in ensuring smooth
governance in the company. Companies have a set of corporate policies and norms to

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follow, like selection of the board of directors, and their composition, the role of the
Chairmen, codes of conduct, business ethics and many other policies (Chassagnon
and Hollandts, 2014). The shareholders expect the company to honour their
obligations and responsibilities. They want the company to provide them timely
feedback about the ways their company is working and moving, they also expect
complete transparency from the side of the board and the management of the
company at all times. The CEO and the CFO sign the documents and the reports of
the company, ensuring their accountability towards the operations and the results of
the company, as a result of which they become liable to the shareholders for providing
any kind of feedback. This helps in ensuring a proper governance of the company,
under the watchful eyes of the shareholders.
Stakeholders and their importance:
A shareholder is always one of the stakeholders of a business organisation, but it is
not the case with the stakeholders of the company, not all stakeholders are the shareholders of
the company. A company cannot grow alone, it needs of the support of all the other groups
of individuals apart from the shareholders, for ensuring their all-round development and
support. They broaden the pool of people who care about the well-being of the company,
apart from the shareholders and the management of the company. They do so because, they
too have vested interests in the company’s growth and development (Walker and Dyck,
2014). It is for this vested interests or the stake, which helps them in clinging to the business
organisation. It includes a wide range of people ranging from loyal customers, employees,
suppliers, creditors, local community, society at large, the government and many others as
well. They share a symbiotic and a healthy relationship with the shareholders and the
management of the company. The company cannot work alone with its management and
owners, it must look as well as cater to the needs and requirements of the employees, their

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welfare and benefits, the supplier’s problems, the expectations of the local communities,
ensuring proper adherence to the needs, expectations, compliance with all the legal and
financial requirements. The importance of the stakeholders towards the organisation are as
follows:
Importance of stakeholders towards a business organisation:
Any successful business relationship stems from the idea of working towards a
common objective, which helps in catering to all of the objectives of the stakeholders and the
company as well. Motivated employees, give their best to the organisation as they know the
importance of the job, which they have at their disposal, vendors and suppliers who are paid
their dues in a timely and efficient manner, always tend to go the extra mile in case of
providing any kind of help to the company (Times.com 2018). In the same way, when the
organisation plays a vital role in providing any kind of help to local community, the local
authorities also help them by awarding them contracts for conducting businesses or
community development. They are also provided tax subsidies and other benefits. When any
company provides quality product and services, which genuinely helps in eradicating the
problems of the society and helps them to increase and improve their standard of living, the
society and the community also serves the company back in their own little way. They help in
spreading a positive word of mouth about the company and its products and services. The
word of mouth is one of the most effective promotional tools, which provides a massive
advantage to the businesses. Thus, it can be clearly implied that the stakeholders play a very
active role in ensuring the overall success of any business organisation. Without any of these
groups of stakeholders, the company cannot survive in the long run. If any one of the blocks
fall of the cliff, the company would collapse, thus each of the stakeholders play a major role
in ensuring the success and the longevity of the organisation.

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Implications of looking solely into shareholder’s interests:
Looking solely into the interests of the shareholders has its own share of
disadvantages and long term implications, which might compromise the integrity of the
enterprise in the long run. Shareholders occupy a significant place in the organisational
hierarchy of any business organisation and they put their money and resources on the line,
which is a considerably risky venture, which entitles them to receive many kinds of financial
benefits to them, but not at the expense of the other stakeholders of the organisation (Garcia
et al. 2016). The dangers of focusing exclusively upon the interests of the shareholders are as
follows:
 One of the most important ill-effect of serving to the interests of the shareholders is
the risk of ubiquitous short termism (Forbes.com 2018). There remains a large
number of chances, where the company executives might conspire with the
shareholders with the purpose of making short term gains at the expense of the
employees, customers and the society on the whole.
 There also exists the risk of rise in the manipulation activities of stock prices, in the
cases, where the shareholders of the company are given too much importance and
their vested interests are solely looked into (Felipe et al. 2015). In these cases, the
manipulation activities of the company executives of the stock prices with the use of
speculation activities and the buybacks of the shares.
 Serving towards the interests of the shareholders of the company, would in a way
provide the organisation a group of disgruntled and dispirited employees. When any
employee of the company would be compelled to work for creating money solely
from the shareholders and the owners, the employee in question would become

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dispirited, let alone be passionate about their job (Walker and Dyck, 2014). This
would severely affect their morale and performance, which would eventually lead to
an increase in the attrition rate and the performance of the company as well.
Need for striking the right balance:
The need for striking the right balance between the two sides has become a
compulsion, as leaning too much on the shareholders’ side have some serious
implications on the overall health of the organisation. Indeed there exists a fiduciary
relationship between the executives of a company towards all of its stakeholders,
especially those apart from the shareholders. It has been rightly said that the value
maximisation of shareholders is an outcome of the activities undertaken by the company
and it is not an end in itself, rather a means to the end. While shareholders do invest their
money into a company, but they are just one of the many spectators, who are a part of this
large group of vested interests holders. Some of them like the employees have their entire
livelihood depended on the company. According to Mishra and Mishra (2013), the
primary stakeholders like the customers, employees are vital to the persistent growth and
development of any organisation, or else it would lead to the cessation of the
organisation. From the point of view of the business, scientists have said that a company
groups and classifies the stakeholders into different groups, on the basis of their financial
value to the organisation. It is because of this the interests of the other group of
stakeholders are exploited and taken care of adequately (Tullberg, 2013). As per reputed
Author and Professor of Harvard, Mr Bruce Scott, in his recent editorial ‘When
Capitalism only rewards shareholders, it’s time to reform’, has said that that today’s
version of capitalism, completely ignores and disregards the fact that corporations owe
their powers to the society and other aspects of it (Scott and Scott, 2018). At times like
these, it becomes very essential to concentrate on the larger picture and take into account

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the needs and requirements of the other group of stakeholders apart from the
shareholders. Thus, the importance of the other stakeholders cannot be ignored. Thus in
this regard, it would be a viable solution to present a Statement which would cater solely
to the requirements and expectations of the stakeholders apart from the shareholders of
the company (TheEconomist.com 2018). It would provide them a sense of importance
within their organisation.
Conclusion:
The importance of the looking into the interests of the various other stakeholders apart
from that of the shareholders of the company is very important. It provides the other
stakeholders like the employees, customers, suppliers, local community, government and
the society an importance in terms of the company’s functioning and growth. This would
go a long way in ensuring an effective, efficient and spirited work force and strong
network of well-connected stakeholders, who would not think twice before bailing out the
company in case of any kind of problem or emergency. Of course the shareholders being
the owners, would always demand better financial returns for their investments, but it also
must be kept in mind that in the process of accomplishing their objectives, the other
parties must not be ignored or exploited in any form.


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References:
Brandt, F. and Georgiou, K., 2016. Shareholders vs stakeholders capitalism.
Chassagnon, V. and Hollandts, X., 2014. Who are the owners of the firm: shareholders,
employees or no one?. Journal of Institutional Economics, 10(1), pp.47-69.
Felipe-Lucia, M.R., Martín-López, B., Lavorel, S., Berraquero-Díaz, L., Escalera-Reyes, J.
and Comín, F.A., 2015. Ecosystem services flows: why stakeholders’ power relationships
matter. PloS one, 10(7), p.e0132232.
Florea, R. and Florea, R., 2013. Stakeholders interests analyse and harmonization-starting
point of strategic approach. Economy Transdisciplinarity Cognition, 16(1), p.130.
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maximizing-shareholder-value/#36d6c5e97094 [Accessed 3 Aug. 2018].
Garcia-Torea, N., Fernandez-Feijoo, B. and de la Cuesta, M., 2016. Board of director's
effectiveness and the stakeholder perspective of corporate governance: Do effective boards
promote the interests of shareholders and stakeholders?. BRQ Business Research Quarterly,
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2018].
Mishra, A. and Mishra, D., 2013. Applications of stakeholder theory in information systems
and technology. Engineering Economics, 24(3), pp.254-266.

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MIT Sloan Management Review. 2018. Why Boards Must Look Beyond Shareholders.
[online] Available at: https://sloanreview.mit.edu/article/why-boards-must-look-beyond-
shareholders/ [Accessed 3 Aug. 2018].
Scott, B. and Scott, B. 2018. Column: When capitalism only rewards shareholders, it's time
for reform. [online] PBS NewsHour. Available at:
https://www.pbs.org/newshour/economy/column-capitalism-shareholders-time-for-reform
[Accessed 3 Aug. 2018]
The Economist. (2018). A new idolatry. [online] Available at:
https://www.economist.com/business/2010/04/22/a-new-idolatry [Accessed 3 Aug. 2018].
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Walker, K. and Dyck, B., 2014. The primary importance of corporate social responsibility
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