Discussion
How does a stakeholder view of corporate governance differ from a shareholder driven view? You should organisational examples to examine the differences between these approaches.
The principle of stakeholder has gained recognition in the domain of corporate governance in the last few years (Bottenberg, Tuschke and Flickinger 2017). It can be stated as the refinement of a large number of limited access of business corporation who ultimate is to easily promote the economic interest of the shareholders. The stakeholders generally cover a larger section or group that is employees, communities and another kind of people. Various economist round the globe has been attracted by the kind of relationship between corporate governance and human capital (Tricker and Tricker 2015). Their ultimate goal is the method by which various firms can be owned and controlled. The last section deals with the way by which a firm can be owned or controlled.
The coming pages of the report mainly deal with the difference in view from the side of stakeholder and shareholder. An idea has been provided regarding corporate governance and interest of stakeholders. After that case of a mandatory employee, representation has been discussed in details. The German case with respect to corporate governance has been discussed in details. The last section of the report mainly deals with Gucci story where a proper idea has been provided regarding between shareholder and stakeholder.
Stakeholder vs Shareholders
Each and every organization around the globe raise or gathers capital by providing shares to the normal public. Shareholders can be stated a person who has bought a certain number of shares either from the primary market (West 2016). There are mainly two types of shareholders that are equity shareholders, preference shareholders.
A stakeholder can be easily stated as a party which can easily influence the various activities of the organization. The company management is then accountable to a large number of accountability to various shareholders. There are mainly two types of stakeholders that are internal stakeholders and external stakeholders (Kraakman and Hansmann 2017). Internal stakeholders comprise of owners, employees and trade unions. While external stakeholder comprises of suppliers, creditors, customer and lastly society.
Shareholders can be defined as a person who has invested a large amount of money by easy purchasing of a large number of shares. While stakeholder can be easily stated as a party who comes up interest which is affected by the action of the organization by the direct and indirect way. The thing should be taken into account that scope of stakeholder is much wider while comparing shareholder (Mason and Simmons 2014). Stakeholders generally represent the entire kind of micro-environment of business while a shareholder is all about company’s share for paying prices. So many time shareholders are termed as owners of any organization. Stakeholders are not owners of the company instead of this they are parties with which one needs to deal with within the given company.
Stakeholder vs Shareholders
Corporate governance and stakeholder interest
The fact cannot be ignored that the interest of various stakeholders lies in the maximization of profit. Stakeholders come up with time horizon, discount rates and propensities of various risks. The current strategy of corporate management can easily change its behavior which is used for maximizing profit (Aguilera et al 2015). The proper working of various financial markets generally allows us to easily overcome a certain number of difficulties. The proper possibility of trading shares creates a flexibility, permitting various portfolio allocation as per the need or requirement. In the end, the last thing can be taken into aspects like maximization of discount of corporate profits. The growth of insider’s interest can easily have led to slowing down firm growth which can easily lead to higher wages, profitability, and efficiency. This can be considered to be a disadvantage to outsiders who can easily be helpful for the growth of the firm. It can easily take place due to a higher number of employment and greater supply of various goods and services (Denis 2016). The ultimate result of the larger number of unemployment along with lowering the standard of employment. It can be easily applied to a larger number of firms with comes up with lower productivity and lower wages.
The case of mandatory employee representation
The matter of employee representation can be seen in corporate governance depends on the balance of two possible effects. The degree of involvement of an employee in various corporate governance can be considered to be beneficial for the overall productivity and proper value-added a creation (Stout and Blair 2017). It can lead to uneven distribution of entrepreneurial surplus which can be considered as a disadvantage to employees.
German Case
The most important aspects of various employee representation can be seen in corporate governance which can easily lead to the success of the German Model. The major effect which can be an improvisation of employees during hard times. Without any kind of specific German aspects various kinds of corporate governance (Ayuso et al. 2014). Without any kind of German aspect of corporate governance, it can be difficult for improving work time with any kind of unchanged wages. Positive past performances of the German economy can be easily explained by the help of German specific feature of German society. It has been encountered that the performance of the German economy has changed a lot due to protection.
Corporate governance and stakeholder interest
Positive consequence of employee representation in corporate governance bodies
It can be controlled by easily empowering various kinds of employee representative which helps in checking possible opportunities. In governance bodies, employee representation can easily lead to improving the value of a document with various positive consequences. It can be also noticed that better kind of industrial relation can be established which comes up with some kind of consequences that can lead to the identification of interest of employee and firm (Aguilera, Judge and Terjesen 2018). It can also lead to trusting of information by an employee which can provide a huge amount of benefit. Apart from this, it can lead to the transmission of valuable information in the organization or firm. A possible kind of consideration can easily lead to the specific interest of the firm. The protection firm-specific investment by various employees can be done by the possible reputation of employees and properly build a reputation.
The market for corporate control and management-labor relationship
From the perspective of shareholders, the idea about external threats from various external threats can easily lead to a much greater value of loyalty from managers. Apart from this alignment of interest can be seen with various principals which can lead to direct monitoring. The Anglo-Saxon system can be considered as a good example which helps in ensuring the efficiency of various managerial conduct (Jizi et al. 2014). In countries like the UK and USA, a larger number of firms are widely held and their market capitalization is also taken to higher. The matter of hostile bids is considered to more significant in nature which provides assurance of the fact dominating forces can change the governance mechanism. This fact provides an idea regarding the fact that it is not the individual controlling shareholder but the whole market. Any kind of misconduct from manager side who makes use of water resources and unprofitable projects result in a decline of share prices and proper hostile takeover (Schwartz 2017). Managers of the organization which is about to be taken over by another organization are more to adopt profit strategies. Managers of this organization take this step so that they can easily maximize their shareholder wealth. So, it can be concluded that the threat of any kind of management replacement can lead to the improvisation of investor protection (Martin et al. 2016). On the contrary, the effectiveness of managerial discretion is not fully taken into account because of a large number of problems.
The case of mandatory employee representation
In the matters of hostile takeovers, a case of free riding issues comes into action. In some cases, it is seen that shareholders think that a particular raid can be successful and it can improve the efficiency of the firm. Then it is seen that he will not tender any kind of share but will retain it because of it generally in profit (Zhong, Wang and Yang 2017). In matter when there is control of public good then internalization of benefits is properly hindered by avoiding any kind of monitoring activities done by stakeholders. The second case is all about hostile bidding which can easily lead to a negative kind of outcomes like management and short-term behavior. The third effect is all about the benefits of takeovers which is a well-known mechanism used for controlling an inefficient management with an efficient one. It cannot be achieved due to primary reasons forbidding as it does not lead to any kind of efficiency improvement. It is seen that the takeover solve various kinds of issues related to cash flow problems but not the whole agency problems (Luo et al. 2015). It is considered a bidding action which is mainly undertaken to pursue any kind of growth objectives that can bring huge benefits to the buying organization or firm. Instead of that, it will try to improve the whole efficiency of the corporate target.
Gucci Story
Gucci story provided an idea regarding the interest of employee which is invoked as a proper hostile bid. An instrument of labor relation like ESOP should be done like a hidden powerful anti-device. After a few years, a general model was there which can be used for satisfying the incentive compatibility constraints. The organization focus on the adaptation of employee share ownership plan (ESOP), bargaining of generous long-term contracts, reduction of hostile bids and rendering of corporate control. Efficiency wages are considered as an incentive device for gathering effort from employees. It is one considered as one of the main issues of labor economics. But it is encountered that the owners and employees come up with same interest through employees (Shahzad, Rutherford and Sharfman 2016). Along with these, there can be an alternative relationship between managers and workers. Managers can easily take effort with the help two strategies that are generous wage payment or strictly monitoring the activities of workers. But the fact should be taken into account that the two stated policies are considered to be different with respect to managerial preferences. The total cost involved is taken care of by shareholders and monitoring cost is totally done by the managers.
German Case
Three elements are considered as a proper kind of ingredient between various managers and workers. The first thing which taken into account is the bonuses and stable relationship transform which reduces the bid for some of the potential raider (Al-Bassam et al. 2018). As per employee protection rules, some long-term bonds are signed and raider cannot succeed in renewing and wage cutting. The last thing that should be taken into account is the number of strategies which is given by investment and plant acquisition and destruction of the plan. Any kind of weakening of hostile focus on few strategies on empire building model which comes up from managerial preferences.
Conclusion
From the above discussion, it can be easily concluded that this report is all about the difference between stakeholder view vs shareholder driven view on corporate governance. For proper monitoring of shaping governance and labor management in stakeholder society a large number of factors are taken into consideration. In many cases, it is seen that traditional conflict is seen between capital and labor which is replaced by the new conflict between strong insiders and weak insiders. When controlled by an empowered employee it can easily lead to mitigation of opportunities behavior and running into it. In many cases, it can lead to private benefits of control which can easily result to block holders. A proper idea has been provided regarding the fact that the firm should set up some kind of multilateral contracts over the given period of time. It focuses on the fact that the employee should sign various contracts implicit and explicit with other parts. A proper right must be there to bargain over the various distributive effect against those agreements and it should be acknowledged on daily time to basis. The simplest kind of thing which can be encounter is the proper maximization of various corporate profit. In many cases, it is seen that stakeholders come up with the proper kind of corporate management which can easily change over the period of time. The degree of success of managerial activity totally depends on the cost of various resources which are invested in the firm.
References
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Aguilera, R.V., Judge, W.Q. and Terjesen, S.A., 2018. Corporate governance deviance. Academy of Management Review, 43(1), pp.87-109.
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Luo, X., Wang, H., Raithel, S. and Zheng, Q., 2015. Corporate social performance, analyst stock recommendations, and firm future returns. Strategic Management Journal, 36(1), pp.123-136.
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