Shareholders Vs. Stakeholders - Round 1

Shareholders are a very important stakeholder for a business as they provide investment sources to the company through equity. However, shareholders must have an attractive rate of return on their investments if they are to put money into a business. Therefore, businesses are shifting a lot of their business focus to shareholder value planning and management. However, what shareholders consider to be successful business performance may not be the same as other stakeholders perceive. In today’s business world, with the ease of stock trading and equity transactions, businesses have shifted to please a shareholder view of value.

For this reason, businesses must consider the consequences of this shift in focus in value-perspective, because it emphasises, some extent, profitability over responsibility and sees the organisations primarily as instruments of its owners. Shareholder value is a vision of measuring business success through assets and capital performance as well as share price, dividends and economic profit.

Shareholders often come in two forms. Long-term shareholders, who are often from within the organisation or those that consider the welfare of the business to be very important and are willing to forgo a little dip in share prices or dividends in order to gain more in the future, and short-term investor, one that has no attachment to the business itself and is looking to only maximise the return. If we take this into account, we could argue that decisions made by this type of stakeholder will not always result in what is best for the company and its employees. This brings up the issue of conflict of interests.

The performance of the shareholders in the management planning used to aim for one dimensional financial goal, such as the RONA (return on net assets) or the ROI (Return on Investment) and the biggest equity for the shareholders, but this kind of objectives leaves at side the interaction between the business and the other parts of the business, like the employees, suppliers and of course customers.

Retail business should consider all the interests of the stakeholders, so as an answer to the needs of the business environment it was created a balance scorecard. When business look for a balance of effectiveness between the organizations mission/business and the operational management, translates a lot of company’s strategic objectives into a coherent set of performance measures increasing the shareholder return over the business.

The balance scorecard balances the external and the internal objectives because it provides an integrated approach to strategic planning. 

The balance scorecard covers all the needs of the stakeholders. Managers select a small number of strategically and relevant indicators that reflect the strategic vision from six different perspectives:

• Internal business process perspective which looks the capital requirements and what should the organization expect from their staff to demand different goals.
• Financial perspective which is how shareholders measure success (like the ROE and ROI).
• Competitive response perspective, which analyses which value the company should develop to achieve success under a competitive environment, this perspective of response of the environment has to work together with the consumer/market response perspective and Learning and growth perspective, because the first one analyses what requirement added value to the customers and the second one analyses what are the creativity and resource characteristics necessary to improve and create value on the customers. 
• Finally, there is a suppliers and response perspective which considers what the organization should expect from the suppliers and what can the organization offer to the suppliers.

An additional benefit of the balance scorecard approach is that it offers a stakeholders perspective of strategy planning. For many organizations it is crucial that they take their suppliers, employees and shareholders, as well as their customers, into the planning process. A Stakeholder approach permits the trade-off review and leads to optimization which may offer long terms profitability for all members of the value chain rather than short-term profit maximization for one single member.

Compromises do not necessarily need to be made concerning other stakeholders e.g. employees, suppliers and customers.  Retail investors pay close attention to the profit and loss of single stores, presuming that given enough stores in demographically consistent locations, and if each store generates an appropriate percentage of revenue or operating income, the chain will organically create enough money to fund further efficiencies and economies of scale to support general and administrative expenses.