...SUBJECT-101 BUSINESS, CULTURE AND SOCIETY Shareholder v/s. Stakeholder Theory Under the guidance of Dr. Kuriakose Mamkoottam Professor & Director School of Business, Public Policy & Social Entrepreneurship (SBPPSE) Ambedkar University Delhi (AUD) Submitted by: Amrita Arora S143F0005 Shareholder v/s. Stakeholder Theory The term business refers to any organization that is engaged in making a product or providing a service for a profit. And society, in its broadest sense, refers to human beings and to the social structures they collectively create. Both, business and society, taken together, form an interactive social system. Each needs the other, and each influences the other. The most central and debatable topic on the relation between business and society today is about the fundamental purpose of the business. This question has been answered with the help of two different theories – Shareholder Theory and Stakeholder Theory. Each of them is explained below. The Shareholder Theory (Ownership Theory of the Firm) sees the firm as the property of its owners. The purpose of the firm is to maximize the returns to its shareholders, which is also depicted in its single objective of Value Maximization. Here, managers and boards of directors are agents of shareholders and have no obligations to others, other than those directly specified by law. Many companies, like Apple, have performed exceptionally well while following the shareholder theory because they are of the view that...
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...corporate governance (GCG) in a corporate set up leads to maximize the value of the shareholders legally, ethically and on a sustainable basis, while ensuring equity and transparency to every stakeholder - the company's customers, employees, investors, vendors-partners, the government of the land and the community (Murthy, 2006). GCG is a must for ensuring the required values to different stakeholder groups. It enhances the performance of corporations, by creating an environment that motivates managers to maximize returns on investment, enhance operational efficiency and ensure long-term productivity growth. Consequently, such corporations attract the best talent on a global basis. It also ensures the conformance of corporations with the interests of investors and society, by creating fairness, transparency and accountability in business activities among employees, management and the board (Oman, 2001). Again, GCG increase public confidence in a corporation, and lowers the cost of capital for investment. According to a McKinsey study (2002), over 60% of investors cite Good Governance practices in a corporation as a key factor in their investment decisions. Today, GG becomes a slogan and a pride. Here, we can uses accounting as a mean for establishing and retaining corporate governance. Accounting is a process of compiling information for reporting the internal affairs of any entity to different stakeholders at the end of a certain interval. It is defined as the language of business...
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... a) A narrow definition which consistent with agency theory focuses on relationship between company and shareholders. 2. OECD: a system a company can be directed and controlled, specify rights, responsibilities and rules; set and achieve objectives and monitor performance. b) A board definition consider relationship between company and stakeholders 3. Agency theory c) A contract under which one or more person engage another person or persons to perform some service on their behalf d) Agency problem rise because of the conflict of interest between principle and agent e) Three specific problems: i. Managers try to maximize their wealth at the expense of shareholders ii. Tendency for management to focus on short-term performance iii. Different attitude of managers and shareholders towards risk f) Corporate governance structures, policies and relationships can help to overcome these three related agency problems iv. Independent board of directors v. Independent board chair vi. Independent board subcommittees such as audit, remuneration and nomination 4. Stakeholder theory g) Reject the only important relationship is shareholders and managers, but consider from a much broader perspectiveshareholder is only one part of the group h) Stakeholders include employees, creditors, suppliers and so on, and they all have impact on the corporation to some extent...
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...is someone treats something as his or her obligation. And business is activities of buying and selling, or in another word, social dealings between hundreds of thousands people all around the world. So my understanding of the term “responsible business” is that companies and firms should build their businesses with the consideration of morality and values rather than only aim to maximize their profits, which means companies and firms should build a socially acceptable business that not only according to shareholders’ wants but also have good influences for society and the environment of our planet. Knight (2015) discussed there are two points of views as in shareholder and stakeholder. Docstos (2009) post details about these two theories that stakeholder theory is businesses have corporate social responsibilities with respect to employees, customers and society at large while Shareholder Theory is businesses have only one obligation, which is to maximize profit for shareholders. Enron, a good example that if a company doesn’t rely on a responsible business-even it’s huge once-it cannot evade nose-dive and crash (Shaw et al. 2013, p3). Founded in 1980s, Enron only took a short period of...
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...shareholder is simply an individual, organization, or company that legally own share(s) of stock in a joint-stock company. By owning shares of stock, a company’s shareholders collectively own the company itself and therefore have the right to vote on decisions that affect how the company is run. This usually means the shareholders as part owners will push for company actions that increase their own financial returns. Definition: A company that uses the shareholder approach to conducting business typically views the impact of business operations on profit. In addition, the length of concern for changes in business operations is usually short-term; such as focusing on meeting quarterly or annual results. Attributes: * Shareholders are primarily concerned with the company’s bottom line. * In a traditional business models, shareholders have the primary influence on the company’s strategy, usually resulting in business model with the foremost objective to increase the company’s stock value. In a shareholder business model, a company only addresses the needs and concerns of four parties: investors, employees, suppliers, and customers; with investors and customers receiving the most attention. Stakeholder approach: To make an analogy, stakeholder and shareholders are like sparkling white wine and champagne. All champagne is sparkling white wine, but not all sparkling white wine is champagne. Similarly, all shareholders are stakeholders, but not all stakeholders are...
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...The current issue and full text archive of this journal is available at www.emeraldinsight.com/1754-243X.htm Corporate governance theorising: limits, critics and alternatives Stephen Letza and James Kirkbride Liverpool John Moores University, Liverpool, UK Corporate governance theorising 17 Xiuping Sun Leeds Business School, Leeds Metropolitan University, Leeds, UK, and Clive Smallman Commerce Division, Lincoln University, Canterbury, New Zealand Abstract Purpose – This paper seeks to examine the mainstream theories of corporate governance in an attempt to suggest that their underlying assumptions and ideologies are misplaced and ought to give way to an emerging pluralistic view of the governing process in order to understand any governance contribution to the dynamics of the business environment. Design/methodology/approach – The paper engages with the traditional literature and views on governance models from law, business and organisational studies perspectives. It then considers the environment and changes in the environment and how those challenge the relevance of the traditional approach, drawing upon the impacts on the fluidity of management and governance perspectives and practices in the global economy. Findings – The reflections and analysis confirm the view that the underlying assumptions of existing models and regulatory frameworks for governance are misplaced and it is suggested, with reason, that a pluralistic view and framework are better than...
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...HAK PARA STAKEHOLDER DAN MENGELOLA KEANEKARAGAMAN TENAGA KERJA DALAMORGANISASI BISNISSHAREHOLDERS VS STAKEHOLDERS Shareholders dan Stakeholders Dua kata bahasa Inggris tersebut kedengarannya hampir sama ataumendekati sama, dan memang keduanya terkait dengan hal yang sama, yaitu tata kelola suatu organisasi korporasi. “Hampir sama” atau “mendekati sama” berarti tidak sama persis. Dalam beberapa konteks, memang harus dibedakan secara tegas agar tidak menimbulkan kerancuan dalammemahami organisasi terkait dan dalam mengidentifkasi hak, kewenangan dan kewajiban masing-masing shareholders dan stakeholders. Sebutan bahasa Indonesia,“(para) pemegang saham” untuk shareholders dan “(para) pemangku kepentingan” untuk stakeholders memang lebih memperlihatkan perbedaan antara keduanya. APAKAH ITU STAKEHOLDER? Menurut wikipedia.org, “Stakeholder dapat diartikan sebagai segenap pihak yang terkait dengan isudan permasalahan yang sedang diangkat. Misalnya bilamana isu perikanan, maka stakeholder dalam hal ini adalah pihak-pihak yang terkait dengan isu perikanan, seperti nelayan, masyarakat pesisir, pemilik kapal, anak buah kapal, pedagang ikan, pengolah ikan, pembudidaya ikan, pemerintah, pihak swasta di bidang perikanan, dan sebagainya. Stakeholder dalam hal ini dapat juga dinamakan pemangku kepentingan.” Secara sederhana, stakeholder sering dinyatakan sebagai para pihak, lintas pelaku, atau pihak-pihakyang terkait dengan suatu issu atau suatu rencana. Dalam buku Cultivating Peace, Ramizesmengidentifikasi...
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...Topic 1: Analysing the external environment Strategy – direction and scope of an organisation over a long term, which achieves the advantage of changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations. Direction – Mission, vision, and course Scope – broad or narrow strategy Long term – 5-10years Environment – General environment & industry environment Resources – tangible and intangible Capabilities – capacity of organisation to integrate and deploy resources to achieve an obj. Stakeholders – society, suppliers, creditors, shareholders, employees, customers Levels of strategy * Corporate * Business General environment (Macro) – broad collection of factors that directly or indirectly have the potential to influence every firm in ever industry within the economy PESTDG framework * Identify trends * Explain trends * State if opportunity or threat * Explain why is it an opportunity or threat Segment | Trends | Political / Legal | Changes to workplace relations, carbon tax law | Economical | Rising interest rates, GFC, inflation rate, unemployment rate | Socio-cultural | Climate change, increase in casual workers, greater concern for health | Technological | Wireless communications, cloud computing, growth in hand held devices | Demographical | Aging population, growing disparity in income level | Global | Growth in Chinese and Indian economy, free...
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...Fonterra’s shareholders and key stakeholders Fonterra´s most important shareholders are farmers who own the business and who are suppliers at the same time and the only way how to become a shareholder is to become a supplier. The share of every each farmer depends on the quantity of milk they supply (Knott 2014). Key stakeholders of Fonterra company are New Zealand´s economic markets as a whole, because economics of the company also influences the economics of New Zealand owing to high contribution in export revenues. Also Fonterra controls very high proportion of a liquid milk in domestic markets as well as some other dairy products which has significant impact on a price. Another stakeholders are connected to environmental which is affected by a firm. As a major water consumer and potential polluter of the water sources and ecosystem by fertilizing and methane emissions Fonterra has and impact on New Zealand´s environment and of course on the entire population living within this environment. For stakeholders we can also take overseas partners and suppliers with whom Fonterra established partnership agreements (Knott 2014). 2. Fonterra’s governance structure Fonterra´s governance structure can be described as a cooperation constitution. There is a Board of directors that is responsible for leadership, direction and oversight of Fonterra. The shareholders elect 9 of 13 members and the next four are appointed by the Board and approved by the shareholders at the Annual...
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...MANAGING FOR STAKEHOLDERS: TRADE-OFFS OR VALUE CREATION1 One of the central uses of stakeholder theory, in its original form, was as a counterpoint to the idea that corporations should be managed in the interests of shareholders. As the theory developed the debate was often framed in terms of “shareholders vs. stakeholders.” While developing “theories of the firm” is an interesting and useful project, focusing solely on “theory of the firm” obscures a more important contribution of stakeholder theory. The purpose of this brief essay is to set forth what I consider to be the central insight of stakeholder theory: the jointness of stakeholder interests. The Basic Idea The basic idea of “managing for stakeholders,” as I now see it, is quite simple, and I believe it is closer to the origins of the idea from Eric Rhenman and the Tavistock thinkers. In fact, Juha Nasi was correct in his assessment of the Scandinavian origins of the stakeholder idea that focus on what holds stakeholder interests together. Nasi originally suggested that we focus on “intressent” in Swedish. “In Finnish this term was modified as “intressentti” or “sidosryhma” which could be translated as an “interest group” or even as a “linkage” or “bonding” or “binding” group.” (Nasi, 1995 at 98) It is this bonding or binding idea that is most interesting to explore. Managing for stakeholders asks us to see stakeholders as “bound together by the jointness of their interests.” So, the basic idea goes like this. Business...
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...in financial gain than in how it treats the environment, employees, and stakeholders it will lose financially. In order to balance the social responsibility and the desires of its shareholder for profit an organization needs to develop a strategic plan that thoroughly explains its ethical and social responsibilities to the stakeholders (Wheelan and Hunger, 2010). Senior executives, business owners, managers and leaders must understand social responsibility and ethics. By doing so they will understand the impacts these factors have on the success of the business. In today’s society firms must understand the concerns of all stakeholders on the organizations environmental impact as well as sustainability. Business ethics are the principals and standards that make up the acceptable behaviors of an organization. The acceptability of these behaviors are made up by the customers, government regulations, competitors, and society in general. Social responsibility and ethics are often used interchangeably but they do not mean the same thing (Crane & Matten, 2010). Ethics are based on the firm’s or person’s decisions that are defined as right or wrong by society’s standards. Social responsibility concerns the impact of the business’s activities on society. To fully understand the stakeholder’s needs the firm should conduct a stakeholder analysis. This analysis will identify the primary and secondary stakeholders and their effects on any strategic decisions (Wheelan and Hunger, 2010)...
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...keeping profit as #1 priority which in other words, means that all the unprofitable ideas, projects gets rejected/put on hold vs. others. On one hand where Profit maximization can be justified on multiple ground like * The main aim of most organization is to earn profit * Profit can be suitable criteria to measure success * Efficient utilization of resources that can further maximize the profit * Profit maximization can lead to welfare of society It is also criticized on the basis of * Vague and ambiguous – As the ‘term’ profit is not defined * It ignores time value of money * Quality of benefit is ignored * Value for owners ignored * It is based on accounting policy which can be altered On the other hand, In current phase Shareholder Wealth maximization looks at the long term approach It accumulates * Market value of shares or market capitalization which is nothing but Market price per share * no of share * Reserves and surplus * Accumulated profits The focus of wealth maximization is on maximizing price per share so that total wealth of a shareholder gets maximized. The shareholder can express his disinterest with regards to progress of the organization, they simply sell the shares which further can be derived as loss in wealth of the organizations, in other words, fall in share prices. To attain Shareholder wealth...
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...their business practices. For being so, they can follow two approaches such as Carroll’s four part model of CSR and stakeholder analysis. It has become a vital concern for the firms like shell to conduct CSR activities as they have to operate in an environment where they have to be economically viable as well as conforming to the legal laws, rights and obligations of the society. Not only the corporate social responsibility but also the stakeholder’s satisfaction can influence a great deal in the firm’s success. So, the stakeholder’s theory means a lot to the firms. Stakeholders can be internal as well as external. For applying those approaches, shell has to consider several analysis like cost benefit, life cycle analysis, environmental impact analysis, stakeholder matrix , segmentation analysis and so on. Finally, the company will get findings of taking one approaches as per the analysis to implement for being sustainable. * Contents Executive Summary 1 1 Introduction 3 2 For effective management of sustainability, these two approaches can be considered by the Shell Group as prescribed. The approaches are 4 2.1 Carroll’s four part model of CSR and Sustainability 4 2.1.1 Economic responsibilities 5 2.1.2 Legal responsibilities 5 2.1.3 Ethical responsibilities 5 2.1.4 Philanthropic responsibilitites 5 2.1.5 Criticism 6 2.2 Stakeholder theory 6 2.2.2 Criticism 8 3 Analysis for the application of chosen approaches for sustainable management 9 ...
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...D1: Evaluate the influence different stakeholders exert in one organisation Stakeholders are groups or individuals that are affected by the operations of a business and have an interest in the objectives of the business. Every stakeholder holds a different opinion and therefore tries to influence the business in the most beneficial way to themselves and their aims; however stakeholder conflict may arise when the aims and objectives of some stakeholder groups compromise the aims and objectives of other stakeholders groups. Employees: Employees are a primary stakeholder within Sainsbury’s whose financial situation is correlated directly with the performance of a business. Employee’s interests must be adhered to as best possible as they can influence Sainsbury’s in three main ways. They can influence staff turnover, (how long employees tend to stay) if they are unsatisfied or feel they are insecure employees may opt to work for a rival competitor such as Tesco if they feel they will have better pay or job security. Employees must possess the correct skills Employees can also influence Sainsbury’s through industrial action, where they may strike in a protest; if the employees aren’t present on a day-to-day basis this may have a devastating effect on sales that day which can be detrimental for the future. Employees have a large influence over service quality; service quality is a comparison of expectations with performance. A business such as Sainsbury’s with high service quality...
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...Topic 1: Business Organisation and Environment 1.3 Organisational Objectives • “If you don’t know where you are going, you’ll end up someplace else.” – “Yogi” Berra, Major League Baseball player and manager. Why do we need objectives? • • • • • • • • • Implement the mission/vision Focus for decision making Set target Motivate employees Have control over actual performance Provide criteria for evaluating performance Reduce uncertainty Provide sense of unity Positive image Hierarchy of Objectives Hierarchy of Objectives Mission and Vision • “Guiding Hand” • Written by senior management. Strategic Objectives • Practical Application of Mission • Allows lower management to make sense of the mission. Tactical Objectives • Elements of mission in practice • Day-today focus for all employees. Hierarchy of Objectives • Objectives run down, becoming more specific. • Overall objectives are replaced, with more relevant ones. • Hierarchy ensures consistency. Objectives • LO1: Explain the importance of objectives in managing an organization. • LO2: Distinguish between objectives, strategies and tactics, and discuss how these interrelate. Objectives • Traditional Objectives – Survival / Breakeven – Cost minimisation – Profit maximisation – Growth (market share) – Profit satisficing Market Share • Relating to this, what could some objectives be for these firms? • What was released on 29th June , 2007? • What does this chart look...
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