Relationship With Shareholders

Shareholders have a unique relationship with companies, as providers of capital and because of their ownership rights. Shareholders elect the board and directors are formally accountable to them. Boards, particularly chairs and board committee chairs, are therefore often directly involved in relations with shareholders, while engagement with other stakeholders is undertaken by management. Reed Elsevier (1995) Shareholders have an important role to playing engaging with companies on the going of the company business. While they cannot directly intervene, they can help to bring about change through high quality dialogue. They can also support companies that want to innovate and change culture, for example through changes to methods of incentivisation.

If shareholders don’t cooperate, it will be very hard to actualize strategies which may lead the organisations not being able to serve as a going concern. However, shareholders can be regarded as the most dominants stakeholders because they invest their funds in the organisation and appoint a board of directors to run the company by making decisions on their behalf, they are basically the owners of the company and hence they expect the board to act in uttermost good faith by taking their interest majorly at heart before making a decision (Donaldson and Preston, 1995 cited in (Heiko and Erik, 2010). Nevertheless, the interest of other stakeholders should not be overlooked but the most the important thing to realise is what they want. Shareholder wants more wealth maximization and better return on their investment and cost cutting to achieve higher profits, while employees want bigger salaries or wages and may also want to work fewer hours than they presently are, customers want lower prices and better quality and 24 hours operations daily all year round and good working conditions (Johnson, 2004). Management has to keep all their stakeholders happy most times and to achieve this management has to enter a series of negotiation with stakeholders by taking into consideration what quality and price would retain

There are various division of stakeholder but we will focus more on the primary and secondary stakeholders. The primary stakeholders are the most important type of one or five stakeholders because without them the organisation would not be in existence or cannot survive such as the shareholders, board of directors and management and secondary stakeholders are the other groups who can be affected by the organisation or indirectly affect the organisation objectives (Verdeyen, 2004). Shareholders and other investors are seen as the most prominent external actors in agency relationship that exist between the board of directors and the shareholders where the board of directors are referred to the agent and the Shareholders are referred to as the principal (Benedicte and Ronald, 2010). The agent is expected to observe fiduciary duty towards the principal by acting in their best interest. The principal incurs agency cost when monitoring the behaviour and activities of the agent. Agency cost includes shareholders rewarding the board of directors with packages that can encourage them to align their interest with the shareholder in order to reduce the cost of monitoring their activities, also the cost of holding and attending meetings