Difference between Shareholders and Stakeholders
The aim of this assignment is to analyse the differences between the shareholders and the stakeholders. The assignment will also discuss why the shareholders are much more important than all other stakeholders. A business organization has a number of different stakeholders, who affect the business operation in some particular way, but the most important one is the shareholders who invests money in the organization and from whom the management works smoothly. There are number of research and debate have been done why the shareholder are much more important in the organization than all other existing stakeholders. This assignment will provide a detailed discussion on the topic. The assignment will also provide some of the recommendation about how they can improve the board decision making by making them responsive to the diverse company stakeholders. The assignment will help to understand why the shareholders have better control on the business organization that they are investing in than all other stakeholders of the company.
To understand the key difference between the stakeholders and the shareholders the understanding of the stakeholders and the shareholders is necessary.
Stakeholders are an accountant, organization, group, system or member who affects or can be affected by organization’s actions (Lawrence and Weber 2014). The shareholder can be highly affected by the policy and the objectives that are set by the organization. Some of the key stakeholders of the company are government, directors, creditors, suppliers, employees, shareholders, community and the union from where the business organization draws all the resources. Stakeholders are of two type’s internal stakeholders and the external stakeholders (Zhu, Sarkis and Lai 2013). Owners, employees, managers and the trade unions are the internal stakeholders of the company and the suppliers, creditors, customers, government, competitors and the society are the external stakeholders of the company.
Shareholder also known as the stockholder of the company is a person, company or an institution who holds atleast one or more share of the company’s stock. The shareholders can also be termed as the owner of the company who reaps the benefits of the organization’s success during the increased values in the stock. However, when the organization is doing poor in the industry the shareholders are highly affected, the shareholders can lose their money. The shareholders are the most important stakeholder in the organization as they invest money and without monetary investment the organization will have no operation in the industry.
- The person or a group who is holding the shares of the company are known as the shareholders. They are the owner of the company and they play a vital role in the operation of the business. They are the most important stakeholder of the company as they invest in the organization.
Stake holders are the group or an individual who has some participation or who is affected by the action of the organization is known as the stakeholders. Shareholders, creditors, suppliers, government, customer, employees are some of the important stakeholders of the company.
- Shareholders are said to be the owner of the company as they purchased the financial shares which is issued by the company. They reap the success of the organization when there is an increased valuation of the stock as well as they get affected when the organization is facing loss in the market.
Stakeholders are those parties who get affected by the organizations objectives and policies. For example, the customers are affected when the organization decides to charge higher prices for their product.
- Shareholders are the part of the stakeholders. It can also be said that the shareholders are the stakeholders but the stakeholders are not necessarily the shareholders.
- Shareholders are highly focused on the revenue that the organization is earning. Their main aim is to increase and earn a higher rate of return on investment.
Whereas the stakeholders of the company focus is on the overall business operation. They focus on the performance, liquidity of the company and the profitability that the organization is earning.
- The organization those who are limited by the shares only have the shareholders whereas every organization has stakeholders. They are bound to get affected by the stakeholders as there whole operation revolves around the customers who are their primary stakeholder.
An organization becomes successful when all of their stakeholders are effective and shows interests in the operation. Among all other stakeholders the organization needs to focus on the shareholders for a number of reasons. The shareholders are the owner of the company and they have a number of roles to play in the organization. The role of the shareholders in the company is:
- Financing:One of the most primary and basic reasons is to collect funds from the investors. In return of the investment the founder of the company gives a part of the ownership of the company to the investors (Mujahid and Akhtar 2014). Private start-ups and organizations may collect funds from the private placements, which are sharing issues to a particular institution or individuals. The founder of the start-up company also provides additional capital including the venture capital, to get a higher percentage of ownership in the market (Daily, Kieff and Wilsmarth 2014). However, the shareholders of the company do not get periodic investment like the bond investors.
- Operations:Shareholders play both indirect and direct roles in the operation of the company. The shareholders of the company elect the board of directors. The board of directors later appoints and supervise the senior employees or officers which include the chief financial officer and the chief executive officer of the organization. The stakeholder of the company plays an indirect role via the stock market. They invest more on the companies who consistently beat that the expectation and invest less on the organization who cannot meet the earning expectation. The management of the company is under tremendous pressure to beat and meet the profit and sales projections. An organization that is constantly making huge revenues and increasing the sales will have a lot of investors than the company who is failed to meet the expected sales target.
- Control:The shareholder of the company decides who controls the public company. A widely held organization, which does not have a single majority shareholder, is prone to hostile takeover. The shareholder of the company can block and stop such moves if they are satisfied and interested with the present management or if they think that the price that is offered is not sufficient (Ben-Nasr, Boubaker and Rouatbi 2015).
- Setting rules and regulations:The shareholders of the company set the rules and regulation of the company. They consider all the financial and operational prospect of the business and depending on that they set the organizational principle. They set a particular sales target for the organization to achieve.
The above discussion gives detailed information about why the shareholders of the company are the most important stakeholder of the company. They have much more control in the organization than all other stakeholders of the company. They chose the board directors who look after all the operation of the organization. The power and control of the shareholders over an organization is way more than other stakeholders.
The board decision making is one of the vital aspect in the organization. The decision making of the board of directors should be accurate and based on past reports. The following points will describe how the board of directors can make better decision.
- Performance assessment and strategy development: The strategies are to be made after proper research by the senior management and the board of directors. The strategies need to be made in such a way that provide robust results, which is acceptable to the owner of the organization and those who have a high stake in the organizations future. The strategies must be made by analysing the market environment and also the potential threats that the organization might be facing or will face in the future. The board of directors must see that the strategies that they are formulating will be acceptable by the management and other stakeholders (Lee, Ryoo and Loo 2014). Google is one of the most identifiable examples who have been highly benefited by the performance assessment of their employee and developing strategies depending on that.
- Development of implementation process and Framework of Risk: A framework for the assessment and weighing of risk has to be prepared which will result in the identification and assessment of risk in a proper and systematic way (Brown and Osborne 2013). The identified risks needs to be addressed without much delay and the various actions that are taken must be discussed in the meeting of the board of directors along with the senior managers. There may be a performance indicator that will indicate what the level of improvement of company has achieved and how the risks are handled. The board of directors must review these at regular intervals. The enterprise risk management is mostly used by the oil and gas sector to understand the potential risk, which will help to reduce major accidents.
- The process of key decision making: All the important decisions of the company are dependent on the decision of the board of directors. Therefore the board of directors are expected to give their full input and consistent participation about the company operations and functioning (Goetsch and Davis 2014). The board of directors are liable for any glitch that happens in the administration of the company. The board papers and other materials must be supplied before final decisions are made by the board of directors. There must be a board facilitator who will facilitate the process of decision making in the boards by providing necessary resources and materials.
Conclusion:
The paper analyses why the shareholders is one of the most important stakeholders of the company. The shareholders are known as the owner of the organization as they invests a lot of money in the organization in exchange of a partly ownership of the organization. The shareholders play a number of vital roles in the organization that the other stakeholders cannot perform. For example, the shareholders elect the board of members who appoints all the senior member of the organization. The shareholders of the organization have much more power than all other existing stakeholders. This assignment also contains some of the recommendation about how the board make better decisions in the organization. They must develop strategy and assess the performance of the employees time to time. They should make a risk framework, which will reduce the risks in the organization. The shareholders of the company have to be given much more priority than all the other stakeholders of the company.
References:
Ben-Nasr, H., Boubaker, S. and Rouatbi, W., 2015. Ownership structure, control contestability, and corporate debt maturity. Journal of Corporate Finance, 35, pp.265-285.
Brown, L. and Osborne, S.P., 2013. Risk and innovation: Towards a framework for risk governance in public services. Public Management Review, 15(2), pp.186-208.
Daily, J.E., Kieff, F.S. and Wilmarth Jr, A.E., 2014. Introduction. In Perspectives On Financing Innovation (Pp. 13-16). Routledge.
Goetsch, D.L. and Davis, S.B., 2014. Quality management for organizational excellence. Upper Saddle River, NJ: pearson.
Lawrence, A.T. and Weber, J., 2014. Business and society: Stakeholders, ethics, public policy. Tata McGraw-Hill Education.
Lee, J.H., Ryoo, S.C. and Lee, S.H., 2014. From multiple choices to performance assessment: Theory, practice, and strategy.
Mujahid, M. and Akhtar, K., 2014. Impact of capital structure on firms financial performance and shareholders wealth: Textile Sector of Pakistan. International Journal of Learning and Development, 4(2), pp.27-33.
Zhu, Q., Sarkis, J. and Lai, K.H., 2013. Institutional-based antecedents and performance outcomes of internal and external green supply chain management practices. Journal of Purchasing and Supply Management, 19(2), pp.106-117
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