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What are the differences betweeen shareholder and stakeholder

Statement 1

"Governance helps us do the right thing, the right way - for our shareholders and our customers, employees, suppliers, local communities and the environment. Our governance is focused on how to get it right, not only in the board room but also across the business…" (Page 46)

Statement 2

"Our aim is to build a sustainable business through consistent, profitable growth and to make sure that our customers and wider stakeholders can always trust us to do the right thing. We recognise that creating shareholder value is the reward for taking acceptable risks." (page 54)


From a finance perspective the main objective of a firm is to maximise shareholder wealth. However from the two statements above it appears that in reality companies don't just focus on shareholders.

To what extent do you agree that shareholder wealth maximisation should be a superior objective over stakeholder interest? Discuss your answer with relevant supporting literature. You may also back up your discussion with relevant real life examples from anywhere in the world.



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I do think that a company should care about stakeholder interest; shareholder wealth maximization is not superior objective over stakeholder interest.


What are difference between shareholder and stakeholder? Inside a corporation, shareholders can consider as stakeholder, but widen a corporation, stakeholders are not shareholders always.

A shareholder just takes a part of the company by getting stock ownership; while a stakeholder is performed in the whole operation of the company, not only just stock consideration. Lépineux (2003) classified stakeholder into 4 categories:


Internal stakeholder (employees, labour union ...)

Operational partner (customers, suppliers, banks, insurance companies ...)

Social community (state authorities, non-governmental organizations, civil society ...)

Shareholders may be the biggest category of stakeholders.

Value maximization says that managers should make all decisions so as to increase the total long-run market value of the firm (Jensen, 2001)

The question raised two statements, which were extracted from 2010 report of Marks and Spencer.

Statement 1

"Governance helps us do the right thing, the right way - for our shareholders and our customers, employees, suppliers, local communities and the environment. Our governance is focused on how to get it right, not only in the board room but also across the business…" (Page 46)

Statement 2

"Our aim is to build a sustainable business through consistent, profitable growth and to make sure that our customers and wider stakeholders can always trust us to do the right thing. We recognize that creating shareholder value is the reward for taking acceptable risks." (page 54)

Two statements highly concerned the stakeholder interest, as the only one and right direction for the company to follow. The corporate governance try their best to do right thing and go right way, that is raising benefit to all stakeholders - including shareholders, customers, employees, suppliers, local communities and environmental. That is their business aim, and they want their stakeholder trust it. In doing so, they can gain stable growth for their business.


There were 2 argumentative theories regarding value creation and maximization, one is shareholder theory, one is stakeholder theory.

Shareholder theory

Shareholder theory follows Friedman, stated that shareholders interest in the increase in value of their shares is paramount of corporations' goals, there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits (Friedman, 1962). The conception started from an assumption that the social purpose of corporation is to maximise shareholders' wealth, this is one way for a corporation to generate goodwill as a by-product of expenditures that are entirely justified on its own self-interest (Friedman, 1970). To explain for this statement, Elena (2007) considered this conception implies that Company's Directors and Executives act as agents of the shareholders, and should use Corporation's resources only for their principal's benefit (Elena, 2007)

This conception shows that the objective of corporation should be maximise the share value of the corporation, with the superior interest to shareholders.

Stakeholder theory

Stakeholder theory claims that corporation should be guided by concern the interest not only of shareholders, but of all stakeholders, including employees, customers, suppliers, local community, besides shareholders; whose interests are affected by company's performance. Stakeholder theory, argues that managers should made decisions so as to take account of the interests of all stakeholders in a firm (Jensen, 2001). The goal of corporate governance is to maximise the wealth creation of the corporation as a whole (Stephen and James, 2008).

A stakeholder was defined by Freeman as "any group or individual who can affected by the achievement of the firm's objectives", and this is "meant to generalise the notion of stockholder as the only group to whom management need to be responsive" (Freeman, 1984)

These two theories attempt to define what main objective of corporation value maximisation. While shareholder theory emphasise the superior of shareholders' interest over stakeholders; by contrast, stakeholder theory tends to reach wider stakeholders' interests by rejecting the superior of shareholder value.

In my opinion, I support stakeholder theory which concerns long - term business operation and growth.


What contribute the business success of a company?

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R S Kaplan and D P Norton (1992, 1996), these authors pointed that to achieve a correct and efficient balance, businesses are to obtain positive valuation from 4 perspectives:

Financial perspective

Customer perspective

Internal business perspective

Innovation and learning perspective

Shareholder is taken into account financial perspective. Hence, from a view of financial perspective, its objective might be maximise shareholder wealth, but it should not be superior objective over stakeholder interest. Beside financial perspective, corporation should obtain other perspective value: customer perspective, innovation and learning perspective should imply employee training and development, internal business should be incorporated to supplier's relation. It shows maximize shareholder wealth as not as superior as shareholder theory thought.

If one corporation focusing on shareholder wealth maximization, it is just short-term benefit. Such short-term benefit can damage company's business. For further long-term point of view, should corporation consider the stakeholder interest maximization, it will be a firmly growth of business and shareholders long-term interests are also gained.

A firm cannot maximise value if it ignores the interest of its stakeholders (Jensen, 2001). Corporate governance should care for the interests of others involvement, besides shareholders'. Corporate governance who concern to stakeholders are easier to achieve corporation goals (e.g., cost reduction by suppliers channel), and possibly solve struggling conflicts (e.g., dissatisfied union activities). The corporation that care for stakeholders surely will receive the positive interaction. Customers will buy products from trusted companies. Suppliers will build partnerships with reliable companies. Employees will work for respectable companies. Lenders will invest in responsible companies. With such good relationship to stakeholders, a corporation can get stable and growing revenue comes from customers; qualified materials and on time delivery come from suppliers; talent and skillful workers and employees, reputation comes from community. And I believe that a corporation with caring stakeholders' benefits can gain great wealth for shareholders as well.

Taking HONDA VIETNAM as one example:

With caring customers, when approaching Vietnam market, Honda has carefully studied the needs of Vietnamese, they have adjusted many Honda design to meet the needs of Vietnamese. Moreover their after service is also rather good.

With caring suppliers, HONDA VIETNAM has developed relationships with many local partners. They support and transfer technology, helping local firms in producing many accessories for Honda, increasing the quality of input sources.

With caring community activities, HONDA VIETNAM has special interest contributions on traffic safety activities, education and environmental protection.

Resulting these right directions, HONDA VIETNAM is now becoming one of the leading motorbike producers in Vietnam, with high appreciation and good reputation. With consolidate report of whole group, the 2nd quarter FY 2010-2011 (Jun-Sep 2010), HONDA MOTOR got net profit of 135.9 Billion JPY (equivalent to 1.7 Billion USD), increasing more than double compare to 54 Billion JPY of the same period last year. Sales increased 9.5% compare to the same period last year, in which sales from selling motorbike in Asia and South America increased 13.4%. It proved reasonable management moral of HONDA.

No company can permanent survive if they try to take only one advantages for one party; such as: in order to increase profit with purpose pay high dividend to shareholders, the company try to increase the selling price, lower the materials input price, and lower the employee's salary and wages. It can raise the value of company's stock value in short term, but no longer, profit can be damaged in the future. The competitors in market likely can find the way to stand higher position. Bankruptcy might be the near scenario.

There also have some negative practices about these theories in Vietnam. One of them is BICICO (Microbiological and Chemical Industry Joint Stock Company). Before 2004, the business performance of BICICO was not so well. In 2004, BICICO transform from State-own to Joint-Stock Company, the General Director tried his best to manage the company well, he replaced some old machines, combined labor union, developed skillful workers, … since that, the profit was improved. The affair happened when the Board of Managers held in 2009 about paying dividend, the chairman did not agree to pay dividend 16%-20% as suggested, he wanted to pay 200%, even there was some ideas from shareholders want to pay 400%. The results for that wrong decision are these:

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Orders decreased. Customers decreased from 30 customers down to 2 customers only.

Instead of working full capacity like before, now workers only work 1 shift per day, 14 days per months.

The company is facing many difficulties at present.

One corporation has many related parties - stakeholders. Well managing these relationships will help the corporation strongly develops.




The firm




A company has responsibilities to a number of interested parties

Source: Arnold, G. (2008, fourth edition), Corporate Financial Management

A good manager is who can control and balance the benefits among stakeholders, how much dividend should pay to shareholders, how much budget should spend to other involvements. These are business strategies of each company and also the successful key for their business. Profit division should base on contribution of stakeholders to corporation. The more contribution of stakeholders, the better value creation and worthy award.

A balanced scorecard was used to as a manageable measurement. It supposed that financial perspective is not the only one to measure the management ability. Beside financial perspective, there should be other perspectives to measure. Let's consider "How one company linked measures from the four perspectives?" of the balanced scorecard.


I strongly suppose that a balanced stakeholder interest will come to results in long-term shareholder wealth maximisation.

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