Question

Creating shareholder value and creating stakeholder value are not always aligned. Do most corporate governance mechanisms and business performance measures reward shareholder or stakeholder value creation? How can these two concepts be aligned?

Answer 1

The term corporate governance was used in several different ways and subject boundaries varied widely. There are essentially two different models of the company, the shareholder model and the stakeholder model in the economics debate regarding the impact of corporate governance on results. Corporate governance in its narrowest sense (shareholder model) also defines the formal system of senior management responsibility to shareholders. Corporate governance can be used in its broadest sense (stakeholder model) to define the network of formal and informal ties that affects the organization

More recently, the stakeholder approach emphasizes stakeholder contributions that can lead to the corporate and shareholder value's long-term results, and the shareholder approach also acknowledges that corporate ethics and stakeholder relationships can also affect the corporation's integrity and long-term success. Therefore the disparity between these two models is not as big as it appears at first, and it is a matter of focus instead.

The corporate governance dilemma for the closely held company is not solely about the security of the general shareholder or the control of issues. Alternatively, the issue is more one of cross-shareholdings, holding companies and pyramids, or other structures used by controlling shareholders to exert control, often at the detriment of minority investors. In this case it is the security of minority shareholders which becomes important. One of the issues that arise in this context is how policy makers implement legislation that do not disenfranchise majority shareholders while maintaining minority shareholders ' interests at the same time.

The corporate governance strategy of shareholders is primarily concerned with aligning the interests of management and shareholders, and maintaining the transfer of external capital to businesses. Yet shareholders are not the only ones making corporate investments. A corporation's profitability and overall performance is the product of cooperation that embodies contributions from a variety of different resource providers including investors, employees, shareholders, manufacturers, distributors, and consumers. The relationships between these various stakeholders within the firm can influence corporate governance and economic performance.