Stakeholder

In: Business and Management

Submitted By ahamed
Words 4065
Pages 17
Stakeholders, Shareholders and Wealth Maximization
V. Sivarama Krishnan, University of Central Oklahoma
ABSTRACT
This paper attempts reconciliation between the two somewhat extreme views
espoused by the shareholder wealth maximization paradigm and the stakeholder
theory. The stakeholder theory challenges the basic premise built into corporate
finance theory, teaching and practice. Corporate finance theory, teaching and the
typically recommended practice are all built on the premise that the primary goal of
a corporation should be shareholder wealth value maximization. Extant theoretical
and empirical research in financial economics also generally accept shareholder
wealth maximization as the normative and ideal goal on which all business decisions
should be based. This paradigm assumes that there are no externalities and all the
participants engaged in transactions with the firm are voluntary players competing
in free, fair and competitive markets. A very different view is offered by what is
loosely called stakeholder theory. The stakeholder theory posits that the focus on
shareholders and firm value is misplaced and managers should be concerned with
all stakeholders of the firm. The paper attempts to address what is felt as a lack of
dialogue between the two camps.

INTRODUCTION
Corporate finance theory, teaching and the typically recommended practice at least in the US
are all built on the premise that the primary goal of a corporation should be the maximization of
shareholder value. Extant theoretical and empirical research in financial economics also generally
accepts shareholder wealth maximization as the normative and ideal goal on which all business
decisions should be based. A quick survey of several corporate finance textbooks reveals this
approach (Brealey and Myers (2003), Brigham and Ehrhardt (2002), Moyer, McGuigan and…...

Similar Documents

Stakeholder Analysis

...Stakeholder analysis by Mohamed A. Abdrabo and Mahmoud A. Hassaan CEDARE 1. Objectives: 1.1 This document intends to provide background information on stakeholder analysis in terms of definitions, objective, need for conducting stakeholder analysis. 1.2 Also, the document aims to provide a systematic approach for conducting a stakeholder analysis within the framework of Wadi Project. 2. Background 2.1 Public issues in general and environmental ones in particular, can affect and get affected by a wide range of groups, bodies and/or individuals. Accordingly, involvement of such groups, bodies and/or individuals may assist in making more informed decisions and increase their potential for success. Furthermore, as the number of such groups, bodies and/or individuals is usually very large, they cannot all be considered for inclusion in such consultation process. Accordingly, a selection process needs to be carried out to identify the most important interest groups to be incorporated in such consultation process. The main criteria employed to prioritize interest groups may include interests, attitude, power and/or influence of such groups which may vary considerably from one party to another. 1.2 It is worth mentioning that stakeholders refer to actors (persons or organizations) with a vested interest in the decision or policy being promoted. 1.3. The main Objective of stakeholder analysis: is to identify the key people who have to be taken into consideration when...

Words: 1324 - Pages: 6

Stakeholder

...Stakeholders, Shareholders and Wealth Maximization V. Sivarama Krishnan, University of Central Oklahoma ABSTRACT This paper attempts reconciliation between the two somewhat extreme views espoused by the shareholder wealth maximization paradigm and the stakeholder theory. The stakeholder theory challenges the basic premise built into corporate finance theory, teaching and practice. Corporate finance theory, teaching and the typically recommended practice are all built on the premise that the primary goal of a corporation should be shareholder wealth value maximization. Extant theoretical and empirical research in financial economics also generally accept shareholder wealth maximization as the normative and ideal goal on which all business decisions should be based. This paradigm assumes that there are no externalities and all the participants engaged in transactions with the firm are voluntary players competing in free, fair and competitive markets. A very different view is offered by what is loosely called stakeholder theory. The stakeholder theory posits that the focus on shareholders and firm value is misplaced and managers should be concerned with all stakeholders of the firm. The paper attempts to address what is felt as a lack of dialogue between the two camps. INTRODUCTION Corporate finance theory, teaching and the typically recommended practice at least in the US are all built on the premise that the primary goal of a corporation should be the...

Words: 4065 - Pages: 17

Stakeholder Analysis

...Stakeholder Analysis Organizations must focus on purposeful communication to stakeholders to stay competitive in the marketplace. A critical aspect of sustaining success is built by committed leaders who have a solid foundation of listening, communication, trust, respect, and belief in the creative potential of each employee (Darling, Beebe, 2007). These assets are vital as Best Production determines and executes a solution to solve a business problem. Best Productions Scenario Best Production is a large video game company that develops new video games. They are working on a new video game for release during the holiday season, which is one-month away. Customers are anticipating the game’s release and the company expects to make a significant profit. Marketing displays have been in stores for weeks. Pre-sales game reviewers found a bug in the software that affects game quality. The game can be played but the defect decreases the quality. This game is a sequel to several previous games, and customers expect the same quality gaming experience. Plans are underway to develop the next sequel. The company’s executives need to decide to either; ignore the bug and release the video game on time or delay the game’s release to January to fix the software defect. Internal and External Stakeholders Stakeholders are individuals or entities that have an interest in the organization. This can be internal stakeholders; employees, internal customers, or management...

Words: 984 - Pages: 4

Stakeholder Engagement

...Stakeholder engagement Stakeholder engagement is a process which is close to the heart of all major organisations which have a sound operating philosophy. By engaging with the stakeholders, the CEO’s ensure the long term success of their business or projects. This is by getting the various interested parties to buy into the success of their venture by making them a part of the decision making and also ensuring that their concerns or requirements are met. Even though this may be driven by rules and regulations to a great extend, we are witnessing a more proactive, inclusive and broader approach in recent times. This is usually a cradle to grave approach taking into consideration the whole life span of the project and its continued or total impact on the various parties involved. The positive impact of good stakeholder relationship on reputation and in turn the profitability of the venture is well recognised by the business community. In fact the brand value of a company is directly proportional to its positive rapport with its stakeholders. As in any relationship mutual trust, respect, transparency and understanding, all play a part in maintaining a constructive engagement with the stakeholders. It takes time to build trust and past records become very important for an organisation embarking on a new venture. Organisations have to tailor their engagements to suit their business depending on the size of the project, its nature and impact on the stakeholders and the...

Words: 1382 - Pages: 6

Stakeholder Influences

...Stakeholder Influences HSM/270 October 4. 2012 Stakeholder Influences In the field of human services one of the most influential stakeholders when it comes to program planning and evaluation is the funding source. Often times the funding source has a specific set of requirements that the program and agency must meet in order to obtain or maintain funding. The program planning and evaluation process is greatly affected by this. The needs and expectations of the stakeholders influence program planning and evaluation because they must adhere to specific restrictions placed upon them by the IRS and other government agencies. The funding source usually wants to proposed program to have similar goals and objectives along with similar values. The program planning may be changed in order to line up with the values of the funding source. The Madison Children’s Hospital seeks to start a program which research is done to look into the issue of chronic illness in adolescents ages 8-21. The funding source for this program is the National Institute of Health Care. The National Institute of Health Care seeks to fund research to improve self-management and quality of life for children with chronic illness. The needs and expectations of the hospital are to address the concerns of a lack in self-management of chronic illness. The hospital is interested in researching the causes for the lack of self-management which is causing an increase in complications as well as a lack of...

Words: 959 - Pages: 4

Stakeholder Mapping

...Stakeholder mapping If OneLife are to go ahead with the take-over from Company F, many people involved internally and externally will be affected. To help categorise the different stakeholder groups, Mendelow’s (1991) power interest matrix will be used. This will help to highlight the different stakeholders involved and priorities the outcomes related to their power and interest in the organisation. (Adapted from Mendelow, 1991) Low Power /Low interest * Customers /Members of OneLife The customers of OneLife, although being the most important aspect of the business due to the revenue they provide, with regards to the take-over would have little effect on the situation. If the company name and image were to be maintained then the customers influence will be minimal as business would continue to operate in the same way, unless the new company decide to change any of the fundamental policies or prices in the membership. Loyal customers can be disappointed as they do not like the new management or brand. High Power/ Low Interest * Government The government although having high power with relation to granting access to new sites will have little effect on the take-over if operations were to continue. They may be affected if the new owners decided to expand further and open new sites. * Employees Employees often perceive a takeover as a threat and can lose motivation. The change of management can reduce employee’s efficiency. In many cases employee can...

Words: 501 - Pages: 3

Stakeholder

...Stakeholders are people or groups of people who can be affected by, and therefore have an interest in, any action by an organization. The stakeholder concept is the view that businesses and their managers have responsibilities to a wide range of groups, not just shareholders. There are two different kinds of stakeholders; Internal & External Internal Stakeholders -These stakeholders are members of the organization: Employees Shareholders (who own the business) Managers and directors of a business External Stakeholders - These stakeholders do NOT form part of the organization but have a direct interest or involvement in the actions of the organization: Customers Suppliers Government Competitors Special interest groups Business decisions can have both negative and positive effects on stakeholders, but it is rare for all stakeholders to be either positively or negatively affected by any one-business activity. It is also possible for any one-stakeholder group to experience both negative and positive effects from the same business decision. This is why conflicts of interest between stakeholder groups with different objectives can arise. Unilever is the world's third largest consumer goods company. Its key stakeholders include: Customers Employees Suppliers Investors Government regulators Local communities Civil society organizations Academics and individual concerned citizens With some, such as our customers, employees, suppliers and......

Words: 316 - Pages: 2

Stakeholder

... central research objective of this report: Finding out the effects and the practises of CSR that influence Nike’s company image The key concepts: Corporate Social Responsibility: the corporate citizenship which is defined in the ways Nike’s strategies and operating practices affect its stakeholder, the natural environment and the societies where the business operates. In this definition corporate citizenship encompasses the concept of csr which is involving Nikes explicit and mainly discretionary efforts to improve society in some way, but is also directly linked to the company business model. Company Image: How Image affects the CSR. How to attract the customer and make him ready to utilize our product and services, and how to build up strong relationships. Effects of the company image/ brand on the customer. Brand awareness: The extent to which brand or a company image is recognized by potential customers and is correctly associated with a particular product. Expressed usually as a percentage of the target market, brand awareness is the primary goal of advertising. In the early months or years of a product’s introduction. Customer always associates the brand with the product that they wish to purchase Brand recall is the ability of the consumer to recollect the brand with reference to the product whereas brand recognition is the potential of the consumer to retrieve the past knowledge of the brand when enquired about the brand or shown an image of the brand......

Words: 1550 - Pages: 7

Stakeholder Analysis

... ways, including holding a general shareholders’ meeting, having a performance presentation and publishing a business report. Employees Another important internal stakeholder group is employees. As of December 31, 2012, LG Electronics has 86,697 employees in total, with 36,378 local employees and 50,319 overseas employee. They are likely to strive to improve pay, working condition and the provision of career development opportunity. They would put lots of effort into improving corporate culture. To motivate employees, LG Electronics conducts survey and also holds an open communication session. Customers We can clearly see from the mission statement that it strives to satisfy diverse customers across the world. In 2012, it has approximately KRW 50.96 trillion in sales. Without customers a business would not exist. Generally, customers aim to get good deals. Also, they expect the provision of safe products, fair marketing and provision of accurate information. Suppliers By the end of 2012, LG Electronics purchases raw materials from more than 4,300 suppliers. Suppliers also hold a stake in the company because they provide the firm with raw material. Suppliers are expecting fair trades. NGO/ International organizations In this case, LG Electronics is related to many organizations. Tons of greenhouse gases are emitted during the production process. Environmental organizations aim to reduce the emission of greenhouse gases. It may influence the decision made by LG...

Words: 601 - Pages: 3

Stakeholder Analysis

...A stakeholder is a person, group of people, or an organization involved in the project, or they may be affected by the project or its outcome. To successfully complete the project, it’s crucial for PM to identify project’s stakeholders, their needs, requirements, expectations, group, interests, power, influence, and everything that can be found out at very initial stage of the project. There are four pre-requisites or inputs needed in order to carry out the “identify stakeholders” process: 1. The project charter 2. Procurements documents 3. Enterprise environmental factors 4. Organizational process assets The project charter is a high-level document that triggers the project. It is the project charter that defines an official and recognized project requirement. The project charter may describe some of the stakeholders along with their interests either in the project itself or the end-product/deliverable. Procurements documents input is required if there is a contract involved with the project, in which case such procurement documents should lay out who the main stakeholders are and their needs. Enterprise environmental factors are the common inputs for many processes, values and work ethic, laws and regulations, industry norms, the structure and culture within your organization, the characteristics or mindset of your projects stakeholders, the industry or market place within which your project fits, along with its appetite for risk. Organizational...

Words: 416 - Pages: 2

Stakeholder Analysis

...Stakeholder Analysis Brittany Collins Dr. Richardson Public Policy Analysis and Plan 11.7.13 Introduction This paper provides a comprehensive stakeholder analysis of the affordable medical care policy change. The policy change has triggered multiple debates across the United States of America earning the name ObamaCare due to the president’s commitment to see the policy implemented. An argumentation analysis is provided identifying the different contending positions as well as assumptions. Moreover, an argument map of the issue is also developed. It is pertinent to note that the policy issue affects stakeholders across different industries of the economy in a multidimensional approach. Medical care policy The Obama care health care policy has had wide opinions among various stakeholders in the US. While there are those who support the policy, there are also those who feel that the policy will be difficult to implement and will leave many people without the ability to access basic medical care. However, there is need to analyses the medical care policy and the different opinions that are given to analyses the suitability of the policy (Doolittle, 2013). The policy was laid down as an alternative to provision of cheaper healthcare to the people. Critics of the policy have argued that the citizens are the ultimate stakeholders in this policy; however, there are other key stakeholders involved. These stakeholders include key players in the insurance sector...

Words: 1670 - Pages: 7

Stakeholder Analysis

...[pic] Program Management Office Stakeholder Management Approach and Plan About this document Purpose This document details the process of identifying and managing stakeholders. Definitions, templates and worked examples are all provided. Summary of Changes |Version |Date |Summary of Changes/Comments | |0.2 |2 Dec 04 |Initial Draft provided to Richard Priestly for comment. | |0.3 |6 Dec. 04 |Updated version with comments from Richard. | |0.4 |7 Dec. 04 |Updated version with comments from Susan. | |1.0 |10 Dec 04 |Updated with comments from Michael and released for approval. | Table 1: Version History Author David Worthington, PMO Consultant Introduction Stakeholder identification and management is a key skill for all project managers, program managers and executives (collectively called project manager for the purpose of this paper). Stakeholders are individuals who represent specific interest groups served by the outcomes and performance of a project or program. Project managers are accountable for the end-to-end management of their projects, including performance and expectation management of individuals who may be outside their direct control. Project...

Words: 1968 - Pages: 8

Stakeholder Engagement

...Why does stakeholder engagement matter? Stakeholder engagement is considered to be important for the long -term success of the business. Nowadays more businesses are concerned about collaboration since they realize that emotions play a great role in determining business outcomes. In recognizing this, they tend to use more communication strategies aimed at engaging their customers more broadly and deeply. Here’s a map showing the significant impact of that stakeholder engagement events have on customer perception. http://www.coleridgeconsulting.co.uk/our-services/stakeholder_engagement_benefits.htm This is how I think about why stakeholder engagement is important: Stakeholder engagement displays the willingness to listen. It enables two-way communication which not only provides information but also seeks new inputs to the system. By receiving more information from customers, it leads to effective decision making by addressing possible problems in advance. Stakeholder engagement help managing business risks. Stakeholder engagement shifts from individual to shared responsibility. It turns opposition into support that helps building emotional connection to the organization and create organisational loyalty. By understanding how people are motivated, it allows the company to more easily identify new solutions that get greater stakeholder buy in. Moreover, when people feel be engaged, they are willing to put extra effort towards the business that they trust...

Words: 414 - Pages: 2

Stakeholder

...|STAKEHOLDER |INTEREST |POWER | |Hotel’s managers and employees |- Have more opportunities for job creation and|- Authority to contribute on the operation of| | |promotion within the company. |the hotel. | | |- Job security, prospects and pay. |- Possibility to do something good by working| | |- Safe working space |there | | |- Providing insurances and other benefits. |- Job enrichment | |Hotel’s senior executive and |- Profitability of the complex. |- Authority to make decision about human | |board of directors |- Maintaining a strong reputation for the |resource management. | | |complex. | | |Travel agencies |- Creating the travel business and job for |- To urge the employees or refer them to | | |local people. |other business. | |University/College |- Reduce the unemployment rate...

Words: 342 - Pages: 2

Stakeholder Analysis

... stakeholder are all characteristics of a process. Option 4 is incorrect, ITIL is not a standard: ISO/IEC 20000 would be an example of a standard. ITIL is vendor-neutral, nonprescriptive, and provides a best practice framework. In most cases the policies should be widely available to all customers and users and referenced in SLAs, OLAs and UCs. All of the elements identified are included in the service design package passed to service transition. 1 would be used to support a DML. 2 helps change management. 3 is a release and deployment tool. 4 can help with testing and validation. They all support service transition. © AXELOS Limited 2012 All rights reserved. Reproduction of this material requires the permission of AXELOS Limited. The swirl logo™ is a trade mark of AXELOS Limited ITIL® is a registered trade mark of AXELOS Limited ITIL Foundation Examination SampleA ANSWERSandRATIONALES v5.1. This document must not be reproduced without express permission from The Accreditor. Page 2 of 4 Version 5.1 (Live) Owner – The Official ITIL Accreditor Q A Syllabus Ref 21 C 05-72 Book Ref SO 4.4.2 and 4.4.6.4 22 A 05-82 SO 4.3.1 23 A 04-02 SS 3.2.3 24 D 01-04 SS 3.2.1.2 25 D 01-03 SS 2.1.1 26 C 05-31 SD 4.3.5.6 27 A 05-81 SO 4.1.1 28 D 05-41 SD 4.2.1 29 D 03-01 SS 2.1.6 30 A 04-09 CSI......

Words: 1830 - Pages: 8