DIFFERENCES IN THE SHAREHOLDER/STAKEHOLDER

To what extent can the differences in the shareholder/stakeholder debate be observed around the world?

The differences in the shareholder/stakeholder

Introduction

At the heart of the question are the shareholders v. stakeholder's debate. Or to put it another way: for whose benefit does your company exist? The shareholders alone or a more expansive group including employees and customers?

The differences in the shareholder/stakeholder

A stakeholder can be a financial or vendor organization that has provided senior debt, subordinated debt, and interest yielding financing that has a strong interest in the economic success of the entity or venture. Shareholders can be represented by majority or minority interest holders, portfolio managers of privately held equity capital funds, entrepreneurs, or joint venture partners who may not have internally adequate personnel to monitor an international investment.

Some in the US have argued that the debate is closed and the “shareholder” camp has emerged victorious. Not so fast, respond Wharton finance professor Franklin Allen, and his co-authors Elena Carletti and Robert Marguez, in their new study “Stakeholder Capitalism, Corporate Governance and Firm Value.” The study shows that, The issue is not as settled as some researchers and business people in the United States, United Kingdom and other shareholder-oriented nations might think.In countries with a market economy it is generally agreed that companies should pursue economic profitability. However also not many people would disagree that organizations also have certain social responsibilities. Profitability and responsibility can and should be combined in an ideal world; however it is clear that they are at least partially contradictory. On one hand, businesses must be profitable to survive and corporations must earn a higher return on the shareholders equity than would be realized if the money were deposited on a no-risk bank account. The profits that are made create trust from investors and are usually reflected in higher stock-prices, which make it easier to grow the company further towards its goals. The profits are not only a result, but also a source of corporate competitive health and wealth.

On the other hand, companies are networks of parties and people working together towards a shared goal and not merely 'economic machines'. Employees nowadays represent a major part of the value of any company (intellectual capital). In order to motivate people to work hard for the interests of the company, a level of trust must be built with them. Likewise it is important for trust to develop between the organization and its external environment (customers, suppliers, government, and interest groups). Such trust can only grow from the perceived security that the interests of all individuals and stakeholders are taken into account.

The Shareholder Value Perspective emphasizes profitability over responsibility and sees organizations primarily as instruments of its owners. Shareholder Value proponents believe an organizations success can be measured by things as share price, dividends and economic profit, and see stakeholder management rather as a means than as an end in itself. They believe social responsibility is not a matter for organizations and claim society is best served ...