Should a company’s Board of Directors prioritise shareholders over other stakeholders?

Interesting statement but there is some CONFUSION! ‘Shareholder’ and ‘Stakeholder’ sound similar. Don’t they? As much as I know, they both invest in any company. Then what is the difference?

1:‘ So shareholders in every case are stakeholders but stakeholders are not always Shareholders. A shareholder is said to have a partial ownership in a company and can purchase shares through shares of stock. Stakeholders have their interest with the performance of the company for reasons other than stock performance or appreciation. This means that that the stakeholders are benefited when the company performs well in the long run. So that was all to do about the meaning but to further understand the above statement and build our argument, we need to understand who all fall under the categories of shareholders and stakeholders. 

Basically shareholders can include any individual, company or organization which has a share in the company. At the same time stakeholders are owners, shareholders, employees, regular customers who rely on a particular company for a single good or suppliers and vendors of a particular product from a company. 

 Building upon the argument now, shareholders invest money directly into the company and expect a share in the company’s profits. If a company faces loses so the shareholders have the option of selling their shares and maybe they could switch to buying shares of a different company. They are associated to any company for a short time (the profit making period). Stakeholders have a totally different scenario. They are associated with a company for a long period and are affected by the policies which govern the company. They do not have the option of switching the company very easily.’ (Corporate Finance Institute, 2019). For example If a company is facing loses and decides to cut down on the staff, so a lot of the employees in the company would loose their jobs. In this situation the employees would receive no salaries from then on wards and would have to rely on their savings or any other alternate monetary sources. 

Analyzing the argument “Whom to choose between Shareholders and Stakeholders” 

Every company has a certain goal. Some companies would focus on quick returns goal and some would prefer long term sustainability. Now this choice for the board members is very difficult because a company needs both the shareholders as well as the stakeholders. Shareholders are the main source of investments in a company whereas the company needs its stakeholders to carry out operations, create a goodwill and capture market share. 

< >‘Shareholders would require the board of the company to take decisions like increasing production, expansion in more areas and setting up new infrastructure. Stakeholders would be more concerned with quality of life, employ satisfaction and the overall longevity of the company. Focusing on what area more is a very difficult question. 

According to the Freidman Doctrine a firm’s main responsibility is towards its shareholders. Following that traditionally the business houses were only focusing on their shareholders but now there is a change in trend. The companies have started to understand the importance of CSR (Corporate Social Responsibilities).’ (Landau, 2019). 

To understand a company’s steps towards not only focusing on shareholders here are a few  examples. 1) Various companies now conduct motivational workshops for their employees. By these the companies aim to create a happy and healthy environment for the staff to maximize output. 2) Big conglomerates give benefits to their regular customers and suppliers like complementary holidays or awards to suppliers. This helps in creating brand loyalty. 3) Often companies organize campaigns like tree plantation, sex education, and climate change drives etc. This helps them build an attractive and positive image in the market. 

Conclusion 

Throughout this literature research you got to know the difference between a shareholder and a stakeholder and what are their relations with any firm. The board of directors must be having a tough time deciding who to give more importance to as it impossible to say which is more important. Most important thing to run any company are funds and shareholders are the main source of funds but at the same time we need people who could carry out operations and sell products etc. It would be best for any company to devise out a wise plan which could a balance and satisfy the needs of both the shareholders as well as the stakeholders. For the sustainability of a company it is important that it understands it Corporate Social responsibility.

REFERENCE LIST

Investopedia. (2019). Shareholder vs. Stakeholder: What's the Difference?. [online] Available at: https://www.investopedia.com/ask/answers/08/difference-between-a-shareholder-and-a-stakeholder.asp [Accessed 11 Oct. 2019].

Corporate Finance Institute. (2019). Stakeholder vs Shareholder - Important Differences to Know. [online] Available at: https://corporatefinanceinstitute.com/resources/knowledge/finance/stakeholder-vs-shareholder/ [Accessed 11 Oct. 2019].

Landau, P. (2019). Stakeholder vs. Shareholder: How They're Different & Why It Matters. [online] ProjectManager.com. Available at: https://www.projectmanager.com/blog/stakeholder-vs-shareholder [Accessed 11 Oct. 2019].