Term Paper on "Shareholder and Stakeholder Values"

Term Paper 30 pages (8113 words) Sources: 1+

[EXCERPT] . . . .

Shareholder and Stakeholder Values

It makes sense for our modern world to have a foundation of a market-based economy because there are inherent conditions in the competitive market system that efficiently helps to meet the needs of consumers. These are not modern inventions or recent revelations. Adam Smith held concepts based on an invisible hand which was suggested as early as 1776 in the classic work An Enquiry into the Nature and Causes of the Wealth of Nations. These insights still hold true.

There is no apparent conflict between the business community attempting to maximize shareholder value and maximizing stakeholder or social values. In a sense, we could say that maximizing one inadvertently helps us attain the other. Corporations and businesses can do well in the sense of financial gain if and when they do well in a socially acceptable manner. Adam Smith said that for a business to 'do good as a by-product of seeking to do well.' Thus, in theory the concept seems to have no restrictions. "If the interdependence of persons in the modern corporation is understood as a moral category, then the analysis of the corporation must move beyond a calculation of its material productivity and market capitalization. The transitive and objective nature of human action within the corporate structure must be subordinate to the immanent and subjective significance of the human act." (Pierucci, Naughton, & Clark, 2005)

However, in actual practice it is more than obvious that corporate social standing and profitability are not matters that always work well together. Basically, there are far more instances or scenarios of conflict which has arisen out of a corporation's moral, financial or fiscal policies because maximizing profits and doing what is good for stakeholders and society are not entirely in sync.

This paper aims to address these first and second-order effects of shareholder vs. stakeholder values as well as when and why there are conflicts that arise and ways to resolve these serious situations. The concepts the paper attempts to address focus on timely and classical ideas that corporate American and to some extent the new international conglomerates in our now highly global and extremely competitive world-based economy. The business environment today must address concerns and problems such as corporate migration and relocation, global expansion, data overload, pollution, employee job security as well a plethora of other formerly cut and dry business situations. Our world today has shrunk with the advent of the internet and other technological advances and breakthroughs all of which have created new potential conflict points between shareholder and stakeholder values.

But maybe there are ways to mesh shareholder and stakeholder values. In a presentation during the June of 1999 International Association for Business and Society (IABS) annual conference in Paris, France, Duane Windsor of the Rice University Jones Graduate School of Management thought that there may be a chance to once again combine shareholder and stakeholder values in order to have a more sound business environment. "Accommodation, alignment, or satisfaction of multiple stakeholder interests in a focal firm -- when, how, and by whom -- is an underdeveloped dimension of the governance, value creation, and stakeholder literatures. Explicit endorsements and criticisms of "balancing" of interests exist." (Windsor, 1999)

We know that business must establish profitability in order to survive and grow so corporations must do all that is ethically feasible for them to earn a high return on shareholder equity. The true objective therefore must be to attain profits through a semblance of trust from their investors which entails rising stock-prices. Profits may not be the only outcome of business but it is a good source or indicator of corporate health.

On the other hand, companies must also be seen from the aspect of their human resources. Corporations are actually small to large networks of people who work together to meet a common or shared goal. Business cannot be considered as merely an economic engine. In today's global economic situation, people and intellectual capital still represent the true values of any organization. Just as shareholder value must establish trust with the investing community, from a stakeholder perspective, trust must be established so as to motivate the people who work for the interests of the company. But there are both internal and external interests at stake so it is important develop trust between the organization and the external environment consisting of the customers, suppliers, government, and special interest groups.

Shareholder and Stakeholder Values

Introduction

This report aims to present insights into the ideas of corporate shareholder and stakeholder values. Over the course of more than two hundred years, business entities and corporations have had a major effect on our global economic society. The business community should be a combination of financial, social and environmental performances. Corporations have become such a major part of our society today while they have grown and profited that it is no wonder that these entities are discussed and studied by the likes of academia, business ethics and philosophic scientists, social engineers, theorists in the fields of economics, law, political science and sociology, political parties, labor unions and even various communities, environmentalists, the media as well as the general public.

All are trying to get a better understanding of the various aspects of shareholder and stakeholder value streams. In the first world nations that utilize market economies, most experts agree that companies can best serve their markets by pursuing strong economic profitability. But, just as prevalent is the notion that any and all of these organizations should also strive to meet the understood social obligations and responsibilities to the environment and community even when we consider that the notions of profitability and social responsibility may be at least partially contradictory objectives.

In one spectrum, a business's profitability represents an objective of earning a strong return for the company's shareholders. Profitability helps build a foundation of trust with investors which in turn help the company through increased stock-prices and investor support. Profits can therefore be seen as representing a strong competitive health in a company. But, from another perspective, companies are a grouping of various human resources or people that work together in order to meet some common or shared goal. There should be more to a business than economic endeavors. Employees should symbolize the true value of a company because of its combined intellectual capital and resources. Employees, customers, suppliers, government, and other external interest groups all must hold a sense of trust in a corporation's social and environmental accomplishments in the same way a typical investor would hold trust in a company's financial achievements. With that being said, the combination of shareholder and stakeholder value are very good indicators of the true worth of a business.

Dilemma with Shareholder and Stakeholder Values

Before delve into definitions and other details associated with shareholder and stakeholder values, it may be more beneficial to first demonstrate some of the typical dilemmas our twenty-first century business organizations must face. Consider Wal-Mart and their ambitious expansion to become the world's largest international retailer.

To meet this profitability motivated objective, Wal-Mart continues to satisfy the shareholder values needed for profitability. Wal-Mart uses expansion into world markets like Canada and other international markets to satisfy the need to grow financially and thus meet shareholder expectations. But the Canadian markets were very different for the retail giant and therefore created a strong and antagonistic opposition from various sources. "The study of industrial relations systems permits at the same time, an examination of the role of the state in reproducing antagonistic production relations." (Shorter, 1987)

The expansion and move into the north covered a spectrum of financial and legal concerns such as the acquisition and termination of collective representation of employees, unfair labor practices and the associated regulations, collective bargaining schemes, the scope of individual's rights for collective bargaining and other basic labor contexts. Stakeholder expectations were basically overshadowed by the need for profitability. Wal-Mart as an organization has historically maintained a union free labor force and business platform and they attempted to migrate these philosophies into their new Canadian markets.

Because of their labor policies, Wal-Mart as an organization was already facing labor disputes in their home markets all throughout the United States. This point was driven home when in June 2004 there was a very organized effort by American labor parties to plan and implement a series of multi-million dollar campaigns to unionize Wal-Mart's existing and potential employees throughout the United States. "Union leaders say their chances for organizing Wal-Mart workers shot up this week when a federal judge in San Francisco said 1.6 million current and former employees could sue the retailer for sex discrimination in a class-action lawsuit." (Ramstack, 2004)

These union efforts only intensified as Wal-Mart migrated into the Northern American Canadian provinces where unions were strong. The Canadian markets were even more unionized than the Wal-Mart's United States markets. "In the United States and Canada, for example, labor turnover is about twice as high as in most European countries. Similarly, average job… READ MORE

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