Shareholders and stakeholders are usually perceived in thesame light and is often forgotten that they don’t necessarily provide the samerole for a business. Stakeholders can be a person, group or organization thathas interest or concern in an organization.
They can affect or be affected bythe organization’s actions, objectives and policies. Whereas shareholders who owns shares of stock ina corporation or mutual fund. For corporations, along withthe ownership comes a right to declareddividends and the right to vote on certain company matters,including the board of directors. This effectively means that they willhave different effects on the company but could also have the same as if youare a shareholder in a business you will also be a stakeholder. However, theargument to say that stakeholders that don’t have shares in a business aren’timportant to that business isn’t necessarily true as they provide differentstakes to a business’s success. Shareholders are perceived as the most importantstakeholders in many businesses views due to their outward financialcontribution to the company for their percentage of the business. The massnumber of shareholders a business may be able to obtain will allow the businessto grow and expand whether that be in the production process or in themarketing side of the business. One of the primary reasons for going public isto raise funds from investors.
As mentioned, the company’s founders give uppart ownership to these new investors. Private companies and start-ups may alsoraise funds through private placements, which are share issues to a selectgroup of individuals and institutions. The founders of a start-up company,including venture capital backers, may also provide additional capital inexchange for a higher percentage of the ownership. Shareholdersalso have direct influence on a business because they have voting rights onmajor corporate decisions. Shareholders vote, for instance, on elections ofcompany board members. If company leaders want to split the company’s stock,shareholders usually have a right to vote on the move. Additionally, companies hold annual,and sometimes quarterly, meetings where shareholders can voice concerns andfeedback.
Activist shareholders who own large amounts of stock may also voiceconcerns publicly in an effort to sway company decisions. Shareholders impact the approach companies take to otherstakeholders, including employees, customers, business partners andenvironmental groups. In some cases, company leaders neglect philanthropicpursuits to appease shareholder financial goals. Other times, shareholderspurchase stock because of both the financial benefits and the company’s socialand environmental responsibility. Some companies may overly emphasize costcontrol with labour to minimize business costs as well.
Alternatively, it would be perceived that employees,customers, suppliers, creditors and the local community are the most important stakeholder.Shareholders are likely to cause a business to set increasingly short-termviews on growing their business. Closely related toprofit objectives is the short-term orientation prevalent in shareholder-ownedbusinesses. Shareholders typically have short memories and a desire forimmediate gratification. Leaders of public companies usually feel greaterpressure to generate revenue and create profit quickly. This is a key deterrentfor entrepreneurs who have long-term visions and don’t want to feel pressuredto sacrifice long-term development to create immediate cash.
One way in which business can demonstrate their commitmentto meeting their social responsibilities (and not just the needs of theirshareholders) is by producing ‘Corporate Social Reports’ (CSR), CSR aredocuments that set out a business’s targets for meeting its social obligationsand document the extent to which previous social targets have been achieved.Corporate social reports are increasingly important as businesses are held responsiblefor the consequences of their actions. Over 8,000 businesses around the worldhave signed the UN Global Compact pledging to demonstrate good globalcitizenship in the areas of human rights, labour standard and environmentalprotection. We have already seen that consumers in the UK and elsewhere arebetter informed about the activities of businesses with respect to theenvironment and their stakeholders.
Developments in technology and notabilitythe rising use of social media to report behaviour by firms that is deemedunacceptable has a significant has had significant impact on corporate decisionmaking. Bad news about a company can be tweeted and retweeted thousands oftimes reaching many potential consumers. Companies have to be aware of this andaim to avoid being the subject of bad news. I think that Shareholders can be a large part to abusiness’s growth and success however do not believe that that alone makes themthe most important stakeholders, if this was the case the other stakeholders ina business are likely to be neglected because of the shareholders sole pursuitin short term profit growth and would therefore create a business that operatesin its own bubble an does not take into account the social or environmentalimpacts of what short term profit growth can have which could potentially leadto the company making a bad name for itself and therefore have the oppositeeffect of growth within a business.