The Topic Of Who Owns A Business Has Received Some Recent Attention From A Number Of Sources
Some have emphasized the importance of shareholder ownership, while others have expressed concern over a company’s reliance on
financial
incentives to retain top management or retain outstanding shareholders. Most often, the focus has been on how shareholder expectations are increasing and companies are forced to change the way they operate to respond to these changes.
For those who study management, however, the debate about whether to provide incentives to retain existing investors or foster new participation in the management process often does not relate to what should be done but instead focuses on what is being proposed and the end results of those proposals. These outcomes are often a function of the types of shareholders or stakeholders that are considered. The two broad categories of stakeholder are the shareholder and the stakeholder management. The shareholder, as the holder of shares in a company, represents itself as a group of individuals with equal rights to the profits of the firm.
Since the shares are not considered “owned” by the individual members of the group, those shares are considered “non-liquid” and not considered to be in their best interests. If these same shareholders feel that those with greater economic power are benefiting from the profitability of the firm, they are likely to rebel. Conversely, if they are offered the opportunity to have more of the profits in the form of share options, they may view the proposal as a gift rather than an attempt to increase their own interests.
In addition to the direct stakeholder, the term “stakeholder management” is used to describe the type of management style employed by the Board of Directors, specifically when the Board consists of both financial and non-financial participants. The financial stakeholder is made up of financial management staff and their financial counterparts. They must be handled separately to ensure the best interests of the shareholders are served. These entities have a vested interest in increasing the profitability of the firm since they are paid a fee for each dollar of stock purchased. Stakeholders also include outside board members who are chosen for their expertise and knowledge in the industry. If they are hired on a contract basis, the shareholder wants to make sure that their input is valued.Many times, these outside employees will compete CEO Formula for the same job, and the value of their position must be weighed against the value of the right to represent the shareholder.
In contrast, the stakeholder management style emphasizes the interrelatedness of all stakeholders. It involves an ongoing dialogue between the board of directors and the larger workforce and recognizes that all stakeholders have a responsibility to the firm’s growth and profit.
It is common for a firm to have one or two outstanding shareholders that are continually raising questions about management decisions. Their “testimony” can be ignored or countered at the board of directors level. The concerns of the shareholders are recognized as having merit by the board and their questions are heard in this manner. This ensures that the company remains focused on its bottom line and allows it to retain the support of a number of different stakeholders.
As a conclusion, the topic of stakeholder vs shareholder management has created some confusion within the management world. Management teams that are proactive in developing appropriate communication and stakeholder communication strategies will usually produce better results
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