Stakeholders in Corporate Governance

Directors and manager need to be aware of the interests of stakeholders in governance, however their responsibility towards them is judged. Governance reports have emphasized the role of institutional investors (insurance companies, pension funds, investment houses) in directing companies towards good corporate governance.

Stakeholders are any entity (person, group or possibly non-human entity) that can affect or can be affected by the actions or policies of an organization. It is a bi-directional relationship. Each stakeholder group has different expectations about what it wants and different claims upon the organization.

In this regard stakeholders’ theory proposes corporate accountability to a broad range of stakeholders. It is based on companies being so large, and their impact on society being so significant that they cannot just be responsible to their stakeholders.

Modern corporations have seen as so powerful, socially, economically and politically, that unrestrained use of their power will inevitably damage other people’s rights. For example they may blight an entire community by closing a major factory, thus enforcing long term unemployment on a large proportion of major workforce. They may use their purchasing power or market share to impose unequal contracts on suppliers and customers alike. They may exercise undesirable influence over government through their investment decisions. There is also the argument that corporations exist within society and are dependent upon it for the resources they use. Some of these resources are obtained by direct contracts with suppliers but others are not, being provided by government expenditure.

There is considerable dispute about whose interests should be taken into account. The legitimacy of each stake holder’s will depend on your ethical and political perspective on whether certain groups should be considered as stakeholders. Should for example distant (developing world) communities, other species, the natural environment in general or future generations be considered as legitimate stakeholders.