- Agency Theory vs. Accounting Theory
- The Significance of Marginal Analysis in Managerial Economics
- The Relationship Between Value Maximization and Stakeholder Theory
- What Is the Role of the Financial Analyst in a Large Organization?
- How to Use Budgeting and Budgetary Controls as a Tool of Management
- The Disadvantages of Cost Control
Shareholders include those individuals and entities who own a share in a corporation. Stakeholders include all individuals and entities, including shareholders, who are affected by the activities of the organization. Stakeholders include employees, vendors, customers and the community at large. It is important to understand the differences and similarities between shareholder’s and stakeholder’s models for a variety of reasons. For example, managers must determine which model is appropriate for achieving the mission of the organization. Additionally, investors may base their decision to purchase the stock of a particular company based on the extent to which the company values investors versus other stakeholders.
Note the differences between shareholder’s and stakeholder’s models. Using your pen and paper, create a list of the areas in which the two models differ. For example, the shareholder model measures success according to the amount of profits made for company owners, while the stakeholder model tends to value the satisfaction of all stakeholders equally.
Detail the similarities between shareholder’s and stakeholder’s models. For example, organizational leaders consider the needs of shareholders in both models. Profitability is often important to both models, as no stakeholder may benefit from the failure of the company.
Create a list of organizations that you can analyze to determine which model each follows. Analyzing real-life companies can help improve your understanding of the two models. Start with well-known companies that maintain public documentation of their business practices, including annual reports and Web pages detailing the companies’ corporate social responsibility programs. Choose a few companies that are obviously either stakeholder or shareholder influenced. For example, you might choose a company that sells products that are intrinsically harmful to stakeholders, such as a tobacco company. Conversely, you might choose another company whose mission is to benefit the environment or help needy children. You should also choose several companies whose focus isn’t so obvious.
Compare and contrast each organization to determine whether they adhere to the shareholder’s model or the stakeholder’s model. Evaluate whether each organization values the interests of shareholders above all others and vice versa. For example, identify whether organizational leaders place greater emphasis on profitability or responsibility. The shareholder model focuses organizational activities on creating the greatest amount of profit for company owners. The stakeholder model focuses on developing business practices that benefit all stakeholders.
Consider how organizational leaders in each example might balance the needs of stakeholders with those of shareholders. It is essential to remember that the organization must profit in order to remain in existence. In many cases, companies may benefit all stakeholders, including shareholders by maintaining profitability for shareholders.
Items you will need
- Value Based Management: Shareholder Value Perspective vs. Stakeholder Value Perspective
- The Online Writing Lab (OWL) at Roane State Community College: Types of Papers: Compare/Contrast
- International Chamber of Commerce; Corporate Governance; Governance models
- Corporate Watch: What does a Socially Responsible Company Look Like?
- Jupiterimages/Creatas/Getty Images