Subject 2. Company Stakeholders PDF Download
Stakeholders are individuals or groups with an interest, or stake, in a firm. They are in a reciprocal relationship with the firm, providing the firm with resources and expecting some benefit in return. Each stakeholder group has a unique relationship with the firm. They don't necessarily share similar goals or needs.
The corporate governance structure specifies the distribution of rights and responsibilities among stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.
Shareholders provide funds and expect returns. They are the legal owners of a firm and their wealth is directly related to the value of the company. They typically focus on growth in company profitability.
- The money provided by stockholders is called risk capital, because the stockholders are making a risky investment in the firm with no guarantee of returns or even the preservation of their original investment.
- Because of their willingness to assume risk, managers are obliged to reward stockholders by pursuing strategies that maximize returns to them.
- There are controlling shareholders and minority shareholders.
Creditors provide funds and expect repayment and interest. They typically don't have much control over a firm.
Managers and Employees
Managers and employees provide labor, skills, and ideas, and expect income, job satisfaction and security, and good working conditions. Managers can best serve the interests of stockholders by increasing profitability. Higher profits generate more funds for paying high salaries and offering more benefits to employees.
Board of Directors
A board of directors is a group of individuals that are elected by shareholders to protect shareholder interests, provide strategic direction, and monitor company and management performance. There are one-tier and two-tier structures.
Customers provide sales revenues and expect products that provide value for money.
Suppliers provide inputs and expect revenues and dependable buyers.
Governments provide regulation and expect companies to adhere to the rules.
Learning Outcome Statementsb.describe a company's stakeholder groups and compare interests of stakeholder groups;
CFA® 2021 Level I Curriculum, 2021, Volume 4, Reading 31
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