Corporations exist among the various stakeholders at issue. You were to identify
ID: 2792409 • Letter: C
Question
Corporations exist among the various stakeholders at issue. You were to identify three important stakeholders for a corporation, and then explain the role that each stakeholders plays within the corporation. Additionally, you must explain how they influence one another.
The goal of this assignment is to extend that assignment by writing a short paper in which you answer the following: What do you consider as the most important stakeholder? Is it important for corporations to focus on maximizing shareholder wealth? Explain in your own words where each of the major stakeholders is represented within the financial statements of the corporation. You should be able to discuss at least four major stakeholders at this point. For example, the customers provide sales revenue and are represented within the income statement sales revenue figures.
Explanation / Answer
There are multiple stakeholders to any corporation, depending on the type of business, the company has to prioritise and ensure that they work towards the appeasement of these stakeholders. However, there are some stakeholders who gain momentum irrespective of the type of business, they are as mentioned below -
Customers, Shareholders (investors), Employees, competitors and Pressure groups. The other stakeholders include regulatory bodies, Government, tax authorities etc.,
Customers - They are the ultimate users of products and services, if the company is unable to gather the pulse of th customer, then there is a likelihood that overtime the company may not sustain its competitive advantage. It may eventually perish. They are the revenue drivers for the business, there is a need for the company to constantly stay in touch with changing trends. Their representation is apparent from the topline growth reflected in the income statement of the company.
Shareholders / Investors - For every business, the most important goal to achieve is "Wealth maximisation of shareholders". When we look at what this means, we look at the balance sheet where in Shareholders funds are recorded, every year, the reserves and surplus or retained earnings is added to the existing number and this represents the increase in shareholder wealth. Also, dividends paid will be recorded in the income statement. Thus, both dividend and reserves and surplus / dividends come from the income statement which is a systematic record of all the financial activity conducted over the year. This essentially means that the company has to not only strive to increase its revenues by gathering the pulse of the customer and staying relevant in the market, it has to curtail costs and ensure that employee satisfaction and operational efficiency is optimal. This is the essence of any business, when the focus is on wealth maximisation of shareholders, the rest of the key aspects tend to fall into place.
Pressure Groups - These are external groups such as activists and flag bearers of environmental / social issues who can cause great influence on the branding of any company. A classic example here is of Starbucks which was under a lot of pressure for using Palm oil in its confectionary items, which was unhealthy and unethically sourced. Continuous protests and pressure from social media led the company to undertake initiatives to eliminate the use of Palm oil from its products. Pressure Groups have a valid and intense presence in modern times when technology / social media has been an enabler to create better awareness. Typically, coporate social responsiblity (CSR) initiatives are undertaken to ensure that the pressure groups work in favor of the company. Many companies set aside funds for CSR initiatives which enable them to give back to the society / community. This has a long term impact on the branding and revenue earning ability of the company.
(only 3 important stakeholders are to be discussed here)
Each of these stakeholders influence the other significantly, the pressure groups are capable of marring the revenue growth by strongly influencing the customer psychology / perception of the business. Shareholders are the real owners of any business and can influence the management decisions greatly, they could also control the operational efficiency to a great extent, which essentially means that they could budget the marketing, employee salaries etc., which inturn will affect the other key stakeholders.