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Chapter 3. COMPANY STAKEHOLDERS - Coggle Diagram
Chapter 3. COMPANY STAKEHOLDERS
Stakeholder gropus
Shareholders
owners of the compnay
providers of equity captial
are entitled to a company's net value
residual value after substracting all the compnay's liabilities from its assets
junior class in capital structure
receive proceeds only after all creditors' claims are paid in case of bankruptcy
so they're focused on growth
control
little involvement in company's activities
maintain control through election power for board and specified resolutions
Board is expected to represent shareholders
protecting their interests
appointing senior management
providing strategic direction
monitoring company and management performance
election
publicly traded companies
dispersed ownership
votign power is distributed among a large number of shareholders
and the others
controlling shareholders
holds a percentage of shares that gives them sufficinet voting power to control the election of the board and resolutions
non-controlling shareholders
minority shareholders
Creditors
bondsholders and banks
company's lenders and the providers of debt financing
no voting power
limited influence over operations
covenants
creditors can protect themselves
exert some control over the company
restricts activities of the borrower
debts are not contingent on the company's performance
Managers and Employees
Employee desires
Low-level employees normally seek
fair remuneration
good working conditions
access to promotion
career development opportunities
training and development
job security
safe and healthy work enviroment
Senior executives and other high-level managers are normally compensated
bonuses
equity-based remuneration (or compensation)
certain perquisites.
salary
Managers and employees tend to benefit it the company performs well and among the most adversely affected stakeholders if a company's financial position weakens.
Despite some similarities, the interests of managers and employees and other stakeholders can conflict.
F.e. takeover offer. Attractive for shareholders, but jeopardizing employement
Board of directors
One-tier
Single board of directors
Executive(internal)
Employees of the company, typically senior managers
Non-executive(external)
Not employees of the company
Countries
US
UK
India
Two-tier
2 seperate boards
Supervisory board
non-execuitve directors
oversees management board
Management board
executive directors
Countries
Germany
Netherlands
Finland
China
Customers
Customers may desire
Ongoing support
product guarantees
after-sale service
Customer satisfaction has a positive correlation with sales revenues and profit
Compared to toher stakeholder groups, customers tend to be less concerned with, and affected by, a company's financial performance.
However, sutomers, those with long-term relationship woth the company, typically have an interst ina company's stability
Suppliers
Suppliers often seek to build long-term relationships with companies for the benefit of both parties and aim for these relationship to be fair and transparent.
Like creditors, they're also interested in company's ability to generate cash flow to meet its financial obligations
Government and Regulators
As the collector of tax revenues, a governent can also be considered one of the company's major stakeholders
Stakeholders in NPOs
NPOs don't have shareholders.
Their stakeholders include
Board directors or trustees
Employees
Regulators
Society
Patrons of the organization
Donors
Volunteers
Stakeholders are generally focused on ensuring that the organization is serving the intended cause and that the donated funds are used as promised
Principal-Agent relationships in Corporate Governance
Shareholder and Manager/Director Relationships
In certain circumstances, managers may seek to maximize their personal benefits
(e.g., remuneration and perquisites) to the detriment of shareholders’ interests.
Shareholder and manager (or shareholder and director) interests can also diverge
with respect to risk tolerance.
diversified investment portfolios vs employement
Access to information
Managers have greater access to information about the business and are more knowledgeable about its operations
Such information asymmetry makes it easier for managers to make strategic decisions that are not necessarily in the best interest of shareholders and weakens the ability of shareholders to exercise control.
Insider influence to the board
The ability of a board to properly perform its monitoring and control role may be hindered
Directors favor certain influential shareholders over other shareholders
Controlling and minority shareholder relationship
Minority shareholders often have limited or no control over management and limited or no voice in director appointments or in major transactions that could have a direct impact on the value of their shares.
In companies that adopt straight voting(one vote for each share owned), controlling shareholders clearly wiled the most influence in board of director elections, leaving minority shareholders with much less representation on the board.
Takeover transaction are other example of this
Related-party transactions
Controlling shareholder maintains a financial interest in the transaction and that conflicts with company's best interests
Equity structure with multiple share classes(generally 2) creates a divergence between ownership and control rights of different classes of shareholders
One class is non-voting or has limited voting rights
Company's founders, executives, and other key insiders control the company by virtue of ownership of a share class with superior voting powers
The multiple-class structure enables controlling shareholders to mitigate dilution of their voting power when new shares are issued
Examples
Alibaba
Facebook
Comcast(3)
Google(3)
Manager and Board relationship
Limited information provided to the board, especially to the non-executive
Shareholder vs creditor interests
The distribution of excessive dividends to shareholders might also conflict with creditors' interests if it impairs the company's ability to pay interest and principal
Other stakeholder conflicts
Customer and shareholder
A company decides to charge a high price for its products or reduces product safety features to reduce costs
Customers and suppliers
A company offers overly lenient credit terms to its customers, whereby the company's ability to repay suppliers on time may be affected
Shareholders and government
A company adopting accounting and reporting practices that reduce its tax burden
a bank's shareholders preffering a lower equity capital base while regulators perefer higher capital position.
It's fairly common in the banking industry and has been increasingly in focus since the global financial crisis of 2008-2009