Role Of Stakeholders In Business

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Stakeholders The term stakeholder has been used since the 1930’s, when a Harvard Law Professor, E. Merrick Dodd, publicly supported the identification of four major groups of business stakeholders: shareowners, employees, customers and the general public. A 1963 internal memo at the Stanford Research Institute used the term to refer to ‘those groups without whose support the organisation would cease to exist.’ By definition, stakeholders have a stake in the company, and have the possibility of gaining benefits or experiencing losses or harm as a result of company operations. The stakeholders of each organisation are different, and, in large organisations, different divisions or operational entities may have different stakeholder groups.…show more content…
From the beginning of modern capitalism and throughout most of the nineteenth century industrial revolution, governing companies was simple – it was done by the one group of people– the business owners and founders of the company who both managed and owned the companies. Today owner-managers are very rare and the common pattern in large corporations is a separation of ownership and management functions. Owners no longer have a personal relationship with the company but buy a ‘share’ in it and expect the managers and employees of the company to run it on their behalf. Monks and Minow and Parkinson point to the move in the ‘locus of control’ from the owner to the hands of the directors, describe the many types of share owners, including institutional investors as ‘fragmented ownership’, and point to ‘divided functions and interests’ between shareholders and directors to describe the major differences in the shareholder type ownership ’rights’ • The right to see their stock • The right to vote in the general meeting • The right to certain information about the…show more content…
The problem can be that the relationship between the corporation and shareholder cannot be easily framed in a contract that states all the rights and responsibilities. Authors Jensen and Meckling describe this in terms of agency relation. The shareholder as the principle, contracts the manager as an agent to act in their interest within the boundary of the firm. Shareholders want managers to perform a certain task for them. As a principle they want managers to earn the best return for their investment. They want profits and increased share price, which require major effort on the part of managers. Managers on the other hand want for high salaries, power and prestige which could lead to a reduction in share value. Shareholders have only limited knowledge and insight into the qualifications, actions and goals of managers often referred to as information asymmetry . The relationship between the shareholder and the manager is a delicate one and the possibility of conflict between the two has lead to the focus on corporate governance. Shareholder Model of Corporate

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