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Shareholders versus Stakeholder priorities. Anglo Corporations should have only one focus that is shareholders.

  • Category:
    Management
  • Document type:
    Assignment
  • Level:
    Masters
  • Page:
    7
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    4624

Shareholder Vs Stakeholders Management Use

Introduction

In business operations, organisations have alternative approaches through which to actualize and manage their operations. In this regard, although the applied management approach is based on the existing organisational context, both in terms of the available resources and capabilities, the external environment plays a critical influencing role. Fundamentally, for the Anglo multinational corporations, there are two main forms of management, namely the shareholders and the stakeholders’ management approaches (Hillman and Keim, 2001, p125). On one hand, the shareholders management approach includes a focus on the organisational shareholders and the formulation of business strategic and operational systems with the strategic sole aim of creating value for the shareholders.

On the other hand, the stakeholder’s management approach includes the evaluation and development of overall business operational policies that are geared to not only benefiting the shareholder, but also the venture network of the venture stakeholders both internal and external. One of the key arguments emerging in the management of Anglo ventures has been the statement that they should focus and apply the shareholders management approach as a means of ensuring increased profitability and gains to the venture shareholders into the future (Donaldson and Preston, 1995, p.66). This analysis develops a critical evaluation of the rationality of this statement. In essence, the assessment evaluates which between the stakeholders and the shareholders management approach would be the most viable and rational approach for the Anglo ventures to apply into the future. This is developed through a critical focus of the merits and demerits of each of the management philosophies.

Advantages of shareholders focus over Stakeholders Focus

The adoption and application of shareholders theory in management would earn the ventures a high ad diverse number of merits. This section explores the various potential benefits that the ventures are bound to gain through the adoption and application of the shareholders theory of management.

Increased profitability

The fist strategic goal for any venture development is the need to earn profitability. As such, except for the non-profit generating organisations, for all the other organisations, the expectation is that they will earn the investors a high profitability. In the context of evaluating profitability, key ratios and formulas come into play. On one hand, the profitability of an entity is evaluated through the profit margins gained, which are the excess of the value sold to the cost incurred in developing a product or providing a given service respectively. In this case, profitability is evaluated through the maximisation of the market prices against the incurred costs. This process includes the application of a cost-benefit analysis approach and model (Boardman, Greenberg, Vining and Weimer, 2006, p.26).

The cost benefit model argues that for every aspect to be viable, its overall costs incurred should be less than the attained benefits over a specific period of time. Thus, in the attainment of this approach, organisations employ a number of strategic measures. One is the reduction in the cost of production and service provision. As already evidenced above, the profitability margins gained is the excess of the incurred costs. Thus, through the elimination and reduction of the overall production costs, ventures are able to maximise on their profitability margins in the long run period.

According to Mishan and Quah (2007, p.81) one of the strategic impacts of a system that seeks to reduce operational costs is the enhancement of internal systems operational efficiency. This in most situations is achieved through the adoption of an activities value analysis process This is an internal systems evaluation process that includes the evaluation of specific operational activities and their role in adding value to the overall operational and production system. As such, the activities and processes deemed as adding the most value to the overall system utility are enhanced and developed to increase their overall outputs. On the other hand, for the activities that have minimal or no value to the process, they are either eliminated or improved to increase their contributions into the future. The adoption of this ideal operational system has the long term merit and gains for the operational organisations in that it allows and advocate for increased internal systems efficiencies.

The second aspect of an organisational profitability under the shareholders value maximisation theory is the aspect of the rate of return. In this case, this ratio of profitability goes beyond the obtained margins. Instead, it evaluates the gained prices against the investments offered to the venture. As such, it is vital to understand that while as some organisations could have a high profitability margin, this might time not necessarily translate into a high rate of return. In order to maximise the rate of return, organisations have to evaluate their operational systems to reduce their operational costs, as well as create investments that are most viable. In all the operational cases, organisations have different alternatives to investing into. This means that at all time, there is a choice on the most ideal and applicable form of investments for organisations.

On their part, organisations that apply the shareholder value maximisation philosophy are guided by the overall rate of return of a project over another determinant in a project. This means that managers who are guided by this philosophy will always invest in projects with highest possible returns. This means that such organisations are bound to benefit from the development of risk taking corporate cultures. As Singh (1986, p.569) argued, there exists a direct correlation between organisational investments rate of return and the risk taken. As such, the higher the potential rate of return, the higher the value of risk taken. As such, this analysis notes that through the development of a risk-taking culture, organisations are abounded to develop ideal risk management systems in the long run period, making them more resilient and effective into the future.

The above analysis has evidenced that the adoption of a shareholders’ value maximisation approach need to focus on profit maximisation has immense merits to the practising organisations. As such, some of the benefits include increased internal system operations efficiency through operations and activities value evaluation, as well as increased risk taking practices through the development of proactive risk management systems. Thus, through this reviews, the analysis underscore the need for Anglo companies to apply the shareholder value maximisation approach in management.

Easy and Flexible Decision-Making

The second justification for the use of the shareholders value maximisation management philosophy is in the gains acquired in the decision-making process. In order to evaluate this rationale, it is vital to lay a background on the process of decision-making process in organisations. Although there are different types and forms of decision making, they all apply a standard process for the decision-making process. The first stage is the realisation of a problem, where the need to formulate a decision is developed and analysed. This is followed by the information search and alternatives evaluation stage respectively (Saaty, 2008, p.84). Finally, a decision is taken and a post analysis process of the decision often developed if such a decision as a strategic decision with long-term implications on organisations. In this content, the process of sources of a key decision in making strategic decisions in an organisation is different for the shareholders and stakeholders value maximisation strategies respectively.

On one hand, the stakeholders’ theory application includes the evaluation and sourcing of information and inputs from all the industry stakeholders directly related to an organisation. Moreover, at the alternatives evaluation stage, the ranking and prioritisation of a decision alternative are based on the overall gains to the stakeholders in the market. This is in contrast to the shareholders value maximisation management approach. On its part, the theory is a hedge on the evaluation of decision alternatives that offers the organisations and its shareholders the best quality and most desired outcomes and benefits possible respectively. This process of decision making has two main merits (Oppermann and Chon, 1997, p.183) On the other hand, the decision-making process under the shareholders value maximisation management theory ensures that the organisational interest and gains override the other interests in the market,

This supports the idea need to create a competitiveness and well-empowered venture in the market into the long run period. On the other hand, the decision-making process includes only a focus on the organisational shareholders needs and inputs. As such, this reduces the number of consultations and delays in decision making. This leads to the realisation that a shareholder management based decision is increasingly quick and flexible enough in the market. This makes such organisations ideal in responding to unexpected risks and emergencies in the market through a flexible and effective decision-making process (Saaty, 1990, p.13). As such, this analysis evidences that through the adoption of a shareholder value maximisation strategy, organisations increasingly develop organisational centric and flexible decisions, creating long-term market competitiveness for the Anglo Companies.

Therefore, the section, through an evaluation of merits in maximising profitability’s, increasing operational efficiencies, making organisational centric decision and development of flexible decision in the short run period argues that the Anglo Companies would be justified to apply the shareholder value maximisation management theory in the future.

Advantages of stakeholder’s focus over shareholders

Besides the enlisted gains of a shareholder value maximisation theory application, this section seeks to explore on some of the major limitations of its application and why the application of the stakeholders management theory would be a better and viable alternative.

The fundamental challenge for the application of the shareholder value maximisation theory is its perception of the organisational performance levels. In this case the theory is hedged on the understanding that an organisational performance is based and rated through its overall financial performance. As such, the model argues o the sacrificing on all other operation aspects and value to improve the overall financial performance and efficiency. For instance, in the analysis above, the assessment illustrated that through the application of the shareholder value maximisation theory, organisations are able to eliminate non-value adding operations as men of reducing the overall cost of production to create a high profitability margin in the long run period. The limitation in this trend is that the process value of a system is based on its contribution to the overall financial gains. Thus, any application or process that lacks a direct link to financial gains is considered unviable.

Although this line of argument could have been viable in the traditional market set up, it is no longer viable in the current market context. In the wake of the modern market context, organisational value and performance are not linked to its financial performance alone In fact, the aspect of financial performance and stability is perceived as just but a single component in the entire organisational operational systems and performance levels. In order to illustrate the new paradigm shift in performance evaluation among organisations, this evaluation critically analyses the use of the balanced scorecard as a performance evaluation measure (Camison and Villar-Lopez, 2014, p.2893). The balanced scorecard has an implementation history in that it was developed to remedy the overemphasis on financial performance as the only performance measure. In its fundamental state, the balanced scorecard
evaluates organisational performance based on four key areas, namely the customer basis growth, internal operations and financial performances respectively. On one hand, an evaluation of the customers’ relations includes an exploration of the benefits that the customers and the overall society gain from an organisation in terms of the offered products match to their needs and purchasing power, as well as in the support of other societal issues and programmes.

On the other hand, an internal analysis includes the evaluation of the process through which the existing organisations systems support employee development and well-being in the long run period. Thus, based on the balanced scorecard analysis, it is evident that some of the organisational operations may be cost consuming and not directly related to increased financial performances, yet dear for such an organisational performance. One key example is the corporate social responsibility programmes. These are programmes initiated by a commercial venture to support the existing society (Grigoroudis, Orfanoudaki and Zopounidis, 2012, p.107). This could be in the form of financial support such as provision and support of the education or healthcare system in the nation. However, although increasing on the venture relationships and connection with the society, it has not a direct input to the short-term financial gains to the company. Similarly, an employee training and empowerment programme could lack direct short-term benefits to the parent organisation. However, such programmes are vital in the long-term
well-being of the venture. One of its gains includes increased employee talent development that enhances their overall productivity rise. Moreover, it enhances employee satisfaction a virtue that promotes employee retention and reduced turnover ratios.

Under the shareholder value maximisation, all the above activities have no direct short term link to the organisational financial stability and performance. As such, in the value evaluation process, such activities are eliminated. This means that such organisations would be void of all the other aspect of performance in the market. This creates the leeway for the application of a stakeholder management theory approach in the Anglo Companies in the future (Hasler, 2014, p.1781). On its part, the stakeholder theory management approach is hedged on the need to satisfy all the stakeholders. As such, the theory holds that an organisational decision and strategy should only be applied if it derives the maximum benefits to all the involved stakeholders, both the shareholders, internal stakeholders, and the external stakeholders respectively.

In this case, the theory is hedged on the principles of market competitiveness sustainability. Market competitiveness’ can be described as the process through which an organisation gains an increased positive advantage and market merit over others through the possession of a key resource or capability. However, with rising market competition, not all organisational competitive edges are sustainable in the long run period (Magill, Quinzii and Rochet, 2013, p.14). Thus, it is vital for organisations and ventures to develop strategic competitive edges that are sustainable in the long run period. Unfortunately, financial stability is no longer a sustainable competitive edge. This is because it is easy to be emulated by other organisations in the global market. This is the key pillar of the shareholder value maximisation theory in organisations. This means that through the application of the shareholder value maximisation theory, the Anglo Companies will have short term market competitiveness but their competitiveness would not be viable and sustainable in the long run period.

Hence, this analysis argues that the organisations should apply the stakeholders’ theory in the market. The key application is founded on the pillars of developing and incorporating the different stakeholders in the decision-making process. On one hand, the internal analysis aspects include the development and inclusion of the employees welfare in the strategy and the decision-making process. In this case, the inclusion of the employees is a major pillar for creating the link between the organisational goals and those of the strategic ventures in the market (Jones and Felps, 2013, p.210). In this case, through a training and employee empowerment process, organisations develop and equip the employee with the right and desired skills. This has the long term implication of rising and enhancing employee development and satisfaction in an organisation. In the long run period, the process encourages the development of a high employee retention system. According to the resources based view theory, organisational resources can be categorised into two main aspects, namely the tangible and the intangible resources respectively. In this case, the intangible organisational resources include elements such as employees and brand reputation in the market. Through the development of a high employee value propositions, the stakeholders’ management theory approach creates a two-way approach a benefit in the market (Hiller, 2013, p.289).

On one hand, the high employee value propositions increase the attraction to the venture as a preferred employer in the market; this means that the ventures applying for such employee support programme on empowerment and development are deemed as a key pillar and tool to increasing their attractiveness to potential employees in the market. The relevance and the merits of the application of such a system on employee development could be cited for
example such as the Apple Inc. Company. The Apple Company has developed and attained an overall market brand reputation for employee training and skills development in the market. In this case, the organisation has over the decades launched a series of strategies and programmes to empower the employees. This is hedged on the organisational belief that employee development and increased performance sis based on the ability to tap and nurture the employees talents and skills in the market (Apple Inc., 2016). As a result, this has raised the organisational profile for employee employment attractiveness.

As such, a majority of employees, both active and passive employment seekers apply upon the rise of a vacancy in the organisational systems. This has enabled the venture to raise a huge workforce of the talented workforce who is both talented and skilled. As a result, the outcomes of this process can be illustrated in the performance levels and extents of the company. On its part, the venture has emerged as a major force to reckon with in innovations and creative designs development in the market. Thus, based on the above analysis, this analysis establishes that through the application of a stakeholder’s management approach, the Apple Company has increased its long-term market sustainability.

On the other hand, a high employee value proposition increases the rate of employee retention as well as a low employee turnover in the market. In this context, a high employee value proposition is directly related and linked to a high employee satisfaction rate in the market. As such, through this process, the organisations retain their employees in the long run period. The process and context of retaining employees are directly related to employee productivity in the long run period. In this case, Park and Shaw (2013, p.268) noted that a high employee retention rate translates into a high and increased employee productivity. This means that organisations with a high employee retention rate are bound to have a higher productivity level than those with a low employee retention rate. The link between organisational retention rates and employee value proposition cane is cited in the case of Mc Donald’s Company (Schmelzer, 2007). This is a renowned international restaurant servicing different markets in diverse markets in the economy. The organisation has an overall brand reputation for empowering its employees through training and reward system. As such, the venture has heavily invested in the development of efficient employee management systems. As a result, statistics illustrate that through the employee empowerment programme, the venture has reduced its overall employee turnover ratio. A majority of the company employees report satisfaction and highly retained in the long run period.

Moreover, the process of retaining employees through enhances cost reduction in the long run period. In this case, the process of recruiting, selecting and orienting employees in the global market is an expensive organisational process. This means that huge market costs are incurred in the process of recruiting and orienting employees. This is further demonstrated by the fact that it takes longer prior to employees actualisation of their full potential upon recruitment into a new organisational entity. Thus, this creates the clear illustration that a regular employee recruitment and selection process reduces the overall productivity levels (Hausknecht and Holwerda, 2013). Through the use of the stakeholders’ management theory approach, organisations can effectively overcome this challenge through creating employee satisfaction and loyalty in the market.

This would ensure that the regular costs involved in training and orienting the employees are effectively avoided into the future. Thus, this forms the overall understanding and argument in support of the fact that besides the focus on the short term financial goals, the Anglo-American companies should equally focus on the organisational long-term market goals in the market. In this case, the current market conditions demand that the ventures should create a sustainable competitive edge through developing and creating a means of long-term market sustainability. This strategic approach can be attained through the adoption of the stakeholders’ management approach in the management press.

Among, the key listed gains and benefits for the application and adoption of a stakeholder’s management approach are the merits of diversifying the organisational management process. Through a performance process shifts and changes respectively. In this regard, Securing and Gold (2013, p.5) noted that through the use of the stakeholders management approach, organisations apply a decision-making
process that is hedged on the overall sustainability goals rather than a short-term market financial gains. Thus, the review indicated that such a process empowers the formulation of the strategic process and aspects of enhancing the societal development and well-being in the market. Thus, this means that through the use of the stakeholders’ management approach, organisations enrich and expand their overall market development process by focusing on the well-being of the society both in the short and long run periods (Pemsel and Wiewiora, A. (2013, p.33). As such, this review indicates that through the development and application of the stakeholders’ management process, organisations in the Anglo region will support the development and well-being of the society. Thus, besides the enrichment of the business owners alone in the market, the application of this management approach will ensure that the society and the economy at large benefits from the entire process of development innovations respectively.

Critical Analysis and Recommendations

This section offers a critical analysis of the various management philosophies and their viability ad applicability in the Anglo companies. On one hand, a review of the shareholders value maximisation theory approach illustrates that the application process enhances the development of a market profitability trend through the development and application of a cost–benefit analysis approach on all strategic approaches in the market. This is underpinned by the understanding that the need to maximise organisational gains and profitability creates the basis and parameters through which the organisations improve efficiency by exponentially reducing the overall cost of operations in the market. However a further critical analysis of these approaches illustrates fundamental weaknesses. On one hand, the evaluation revealed that through the shareholders value maximisation process, organisations are oriented towards the focus on financial performance as the only performance base in the market. Thus, this means that such ventures pursue systems and strategies on the basis of the financial gains that is a short term market competitiveness edge. This is further illustrated through an evaluation of the different between a short term and sustainable competitive edge. To this end, the analysis illustrated that a sustainable competitive edge is one that and be sustained in the long run period, due to its hard and difficult by the competition to emulate and acquire respective competitive edges. This challenges as the analysis indicated, can be resolved through the development and application of the stakeholders’ management theory.

Under the stakeholders’ management theory, organisations are focused on the application of the RBV theory which categorised resources as both tangible and intangible in the market. As such, the intangible assets are those that are hard for the competition to emulate such as brand image and employee skills and loyalty, which form the core values for a sustainable competitive edge development in the market. Thus, hedged on the critical analysis of the study findings, as well as a review of the existing literature and review case study company examples, this analysis developed the critical conclusion and recommendation that the ventures should apply and implement the stakeholders’ management theory in the market. This decision is hedged on the understanding that the application of this management theory will have two fundamental benefits to the Anglo companies. First, the organisations will attain a sustainable competitive edge that ensures that the ventures will remain profitable and viable market player both in the short and long term market periods. The second key goal and merit for the venture operations are the understanding that the application of this approach will support the society. This is because decisions are not hedged on the need to maximise profits, but to benefit all the stakeholders. Hence, this creates an opportunity that the ventures operations will be of viable gains and benefits to the society well-being in the long run period.

Based on the above analysis, this study offers the following three strategic recommendations for organisations to improve their corporate governance practices into the future.

  1. Organisations should apply stakeholders management theory to enhance market sustainability in the long term period

  2. Organisations should use stakeholders’ management to create and develop employees training programs as well as to initiate CSR programs in the market.

  3. Ventures should focus on all stakeholders’ implications when formulating strategic decisions.

Conclusion

In summary, the task offers a critical evaluation of the most viable management approach between the stakeholders and the shareholder management strategies respectively. In this regard, the entire analysis was dedicated to exploring on the merits and demerits of the approaches in relation to modern market conditions. Through a critical market analysis, the study concluded that the most viable management approach for Anglo companies is the stakeholders approach. This conclusion is accompanied by the recommendations for the need to initiate CSR and employee training programs as part of developing good corporate governance among organisations.

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