Guidance on Stakeholders and Shareholders Interest

6th May 2021 0 By indiafreenotes

Stakeholder

A stakeholder is someone who has an interest in or who is affected by your project and its outcome.

This may include both internal and external entities such as the members of the project team, project sponsors, executives, customers, suppliers, partners and the government.

Stakeholder management is the process of managing the expectations and the requirements of these stakeholders.

It involves identifying and analyzing stakeholders and systematically planning to communicate and engaging with them. 

A stakeholder is a party that has a financial interest in a company’s success or failure. It can be an individual, institution or group that can impact or be impacted by an organization’s projects and objectives. Stakeholders can be from within an organization or an external body.

Internal stakeholders are people with a direct relationship with the company through investment, employment or ownership. They include shareholders, managers, project coordinators, line managers and senior management. External stakeholders do not have a direct relationship with the organization but can impact or be impacted by its actions. Public groups, vendors, suppliers, customers, contractors, the host community, creditors and industry regulators are examples of external stakeholders.

Stakeholders can be shareholders of a company, but not all stakeholders are shareholders. They often have a long-term interest in an organization and desire for it to succeed. This is because stakeholders and a company often depend on each other. The firm’s success often translates to gains for the stakeholder.

For example, a company’s employees may want their organization to succeed so it can afford higher salaries and improved work benefits. The community hosting a new tech campus will also want the project to succeed because of the benefits it will bring to its members.

Shareholder

Shareholders provide companies with equity capital and are vested with ownership rights to the shares held. While shareholders are often referred to as owners of companies, this description overstates the rights of shareholders. Legally, in most jurisdictions, shareholders are entitled to own and sell their shares, and vote on certain corporate matters as specified by law and the corporate charter. The definition and exercise of ownership rights vary greatly across companies and especially across countries. The most common shareholding structure follows the one-share-one-vote principle, with each share of equity ownership providing a proportionate voting stake to the owner. However, many companies have multiple classes of shares that give some shareholders (typically founders and their families) greater voting rights. The technology sector in the U.S. in particular has seen a growing number of companies with multiple voting classes creating concern about the appropriateness of such voting control and the rights of minority or non-controlling shareholders in such companies.

Responsibilities for Shareholders Interests

The average shareholder, who is typically not involved in the day-to-day operations of the company, relies on several parties to protect and further his or her interests. These parties include the company’s employees, executives, and board of directors. However, each one of these parties has its own interests, which may conflict with those of the shareholder.

The board of directors is elected by the shareholders of a corporation to oversee and govern the management and to make corporate decisions on their behalf. As a result, the board is directly responsible for protecting and managing shareholders’ interests in the company.

Regulators, such as the U.S. Securities and Exchange Commission (SEC) also protect shareholders by helping to facilitate the smooth functioning of the financial markets. The SEC requires publicly-traded corporations to disclose their financial statements periodically throughout the year. As a result, investors and shareholders can access a company’s SEC filings, which might include news of mergers, acquisitions, and financial information pertinent to shareholders’ interests.

A shareholder is an individual or organization that owns shares in a corporation or project. The main interest of a shareholder is the profitability of the project or business. In a public corporation, shareholders want the business to make huge revenues so they can get higher share prices and dividends. Their interest in projects is for the venture to be successful. Unlike stakeholders, shareholders have extensive rights as outlined in the shareholders’ agreement or the corporation’s rules. Here are examples of shareholder rights:

  • They can buy and sell their shares
  • They receive dividends from the company’s profits
  • They can nominate board members
  • They can vote during the election of board members
  • They can vote on mergers and acquisitions, takeover and changes to the company rules
  • They can sue management over violation of fiduciary duty
  • Unlike stakeholders, shareholders focus on a company’s profitability so they are in for the short term. They can sell their shares in the company and reinvest it in another entity, even a competitor.

Guidance on Stakeholders and Shareholders Interest

Shareholders and stakeholders often have divergent interests based on their relationship with the company or organization. This can lead to conflict during negotiations for mergers and acquisitions, as shareholders often support the move because of the higher dividend they will receive. However, company stakeholders like employees, suppliers and management may not support such deals because it can lead to job losses and disruption of supply chains.

In the past, shareholders had an overwhelming influence on their corporation’s policies because they have ownership and voting rights. Most companies emphasized profit maximization at the expense of other stakeholders. However, the growing importance of corporate social responsibility has given stakeholders more input in the affairs of organizations.

Corporate social responsibility demands that a company consider the interests of shareholders and other stakeholders when making decisions. Nowadays, many companies consider the input of different stakeholders who will be affected by their actions before they make a final decision.

For example, a company whose plants will pollute a community’s water supply may invest in a treatment plant to provide safe drinking water to affected areas. Corporate social responsibility can also motivate a firm to set up a college scholarship in the name of a retired executive.