shareholders and stakeholders

7/29/2019 Shareholders and Stakeholders

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SHAREHOLDERS AND STAKEHOLDERS

K.C.COLLEGE Page 1

EXECUTIVE SUMMARY

Stockholder Theory

Advocates of the stockholder theory make their case on the basis of thedifferent functions that organizations can fulfill. Private businesses,according to this understanding, are created in order to generate wealth.They do this by seeking the maximum profits available for themselvesand that can then be passed on to their shareholders. Other functions of organizations can be best fulfilled by other kinds of organizations, suchas non-profits and government agencies.

Stakeholder Theory

Advocates of the stakeholder theory make their case on the basis of thefact that businesses owe their existence to a greater community. Fromthis fact, they argue, comes a basic duty to enrich and improve the wellbeing of the greater community. If the community becomesimpoverished or dysfunctional, this will interfere with the proper activityof all businesses within that community, and so there is also a

justification for stakeholder theory from self-interest.

Ethics

Business ethics is primarily concerned with the debate betweenstockholder and stakeholder theory. In different contexts, either theorymay seem like the more true one. Business ethicists often focus onbridging the gap and showing how a business might pursue the greatestprofit for its shareholders while still behaving in a way that pays ethicaldues to the greater community. Honesty in business accounting is oftentaken to be an example of where duties converge.

Regulation

Both stockholder theory and stakeholder theory are primarily concernedwith the internal deliberation that businesses go through whenconsidering their primary duties. Government regulation is meant toimpose duties and behavior on businesses from the outside. Stockholder theory and stakeholder theory influence government regulation,however, in the sense that the duties a business owes others shapewhat you feel they should be compelled to do. Regulation often imposesboth stakeholder and stockholder duties on businesses.


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Shareholder

A shareholder or stockholder is an individual or institution (including acorporation) that legally owns any part of a share of stock in a public or

private corporation.Stockholders are granted special privileges depending on the class of stock. These rights may include:

The right to sell their shares, The right to vote on the directors nominated by the board, The right to nominate directors (although this is very difficult in

practice because of minority protections) and propose shareholder resolutions,

The right to dividends if they are declared, The right to purchase new shares issued by the company, and The right to what assets remain after a liquidation.

Stockholders or shareholders are considered by some to be a subset of stakeholders, which may include anyone who has a direct or indirectinterest in the business entity. For example, labor, suppliers, customers,the community, etc., are typically considered stakeholders because theycontribute value and/or are impacted by the corporation.

Shareholders in the primary market who buy IPOs provide capital tocorporations; however, the vast majority of shareholders are in thesecondary market and provide no capital directly to the corporation.

Definition of 'Shareholder'

Any person, company, or other institution that owns at least one share ina company.

A shareholder may also be referred to as a "stockholder."

Shareholders are the owners of a company. They have the potential toprofit if the company does well, but that comes with the potential to loseif the company does poorly.
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THE IMPORTANCE OF SHAREHOLDERS IN BUSINESS

Shareholders are the owners of companies. A small business may have just one shareholder, the founder, while a public company may have

thousands of individual and institutional shareholders, such as mutualfund companies, pension funds and hedge funds. Shareholders play animportant role in the financing, operations, governance and controlaspects of a business.

Financing

One of the primary reasons for going public is to raise funds frominvestors. In return, the company's founders give up part ownership tothese new investors. Private companies and startups may also raisefunds through private placements, which are share issues to a selectgroup of individuals and institutions. The founders of a startup company,including venture capital backers, may also provide additional capital inexchange for a higher percentage of the ownership. Unlike bondinvestors, shareholders do not get periodic interest payments or their original investment back from the company.

Operations

Shareholders play both direct and indirect roles in a company'soperations. They elect directors who appoint and supervise senior officers, including the chief executive officer and the chief financialofficer. They play an indirect role through the stock market. Investorsstay away from companies that cannot meet earnings expectations butinvest in stocks that consistently beat expectations. Therefore, companymanagement is under constant pressure to meet and beat sales andprofit projections. Companies that generate significant free cash flowoften face pressure from shareholders to return some of the surpluscash to shareholders in the form of dividends or share buybacks.

Governance

Public companies usually have formal corporate governance policies,such as the composition and roles of different board committees, therole of the chairman, codes of conduct and business ethics. Boards of directors answer to shareholders, not to management. Public companies

must provide timely and complete disclosures to shareholders. Senior executives often spend a few days each quarter discussing operations


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and general business conditions with shareholders, market analysts andthe business media. The chief executive and the chief financial officer sign off on financial documents, thus making them accountable for errorsand omissions.

Control

Shareholders usually determine who controls a public company. Awidely held company, in which there is not a single majority shareholder,is vulnerable to hostile takeover attempts. Shareholders can block suchmoves if they are satisfied with the current management or if theybelieve the offering price is insufficient. Institutional shareholders maypublicly call on company management to consider strategic options,such as selling off the company or merging with another company.

Considerations

Public companies incur certain additional costs related to shareholders.These include investor communications expenses, legal and other feesrelated to regulatory disclosures, and the costs of hosting annual generalmeetings, quarterly conference calls and other investor relations events.


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THE FEATURES AND IMPORTANCE OF SHAREHOLDERAGREEMENTS

A shareholder agreement is an understanding between shareholdersand a corporation, under the law, about various aspects ranging from theshareholder duties to rights, in relation to the company. The shareholder agreement is the basis of company inception and paves the way for itsfuture course. It lays down the guidelines about the duties and thepowers of the board of directors and the management.

Essentials Of A Shareholder Agreement

Experts consider the following points and clauses to be prudent when

constructing the constitution of a shareholder agreement. These pointsand clauses also point out the reasons for having shareholder agreements.

1.Introduce the rights related to the issuance, sale, or subsequentdistribution of shares, including pre-emptive rights and first refusal.

2.Define the duties and rights of the management and the employees.

3.Write the guidelines and the options for the selling and the buying of shares.

4.Construct the guidelines of conduct in the case of any exigencies,such as the retirement or the death of a shareholder. These guidelinesshould set out what affects the exigencies have on the corporation andthe other shareholders.

5.Decide the duties or composition of the board of directors.

6.Decide on the rights of the current and future shareholders.

7.Chalk out exit clauses or mechanisms


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Vital Points For Shareholders

Draft the shareholder agreement carefully to minimize future speculationand possibility of any legal entanglement. A carefully written shareholder

agreement helps the functioning and the transition of events in acorporation. A foolproof agreement needs to concentrate on thefollowing aspects as well.

1.The structure of the company.

2.The roles of the shareholders.

3.Distinctions in the ownership of the shares.

4.Clearly mentioned vesting provisions.

5.Provision or lack of provision regarding the Stock Pledge.

6.Demarcating of the quorum (the minimum strength of the participantsin a meeting to pass a resolution.)

7.Procedures of handling ownership issues in case of buyouts.

8.Methodology of dispute settlement.

9.Voting rights.

10.Issues related to compensation and remuneration.

11.The appointment of professional advisors.

These stated points and issues largely cover the ingredients of a goodand professional shareholder agreement. Strict adherence to the detailsabout the said issues culminates in a finely carved out agreement. Aserious study of the agreement provides valuable insight into the rightsand duties with respect to the corporation and other shareholders, thevisions of the company, and the workforce to achieve these visions. Thecompany should revise a shareholder agreement regularly for anyamendments and upgrade the issues, keeping in mind the currentscenario.

Frequently seek professional advice from expert professionals, such astax consultants and legal experts. This advice eliminates some of the


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botherations that may trouble the company or the shareholder(s) in thefuture. The contents of the shareholder agreement are not bound by lawto be made public. They can be kept confidential or made publicaccording to the consideration of the shareholders. It is in the best

interest of the company to have a shareholder agreement to avoid anymisunderstanding or inconvenience resulting from the lack of clarity indispensing the duties or obligations of the company.


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RIGHTS OF A SHAREHOLDER

Say you just bought stock in Disney (NYSE: DIS ). As a part owner of the

company does this mean you and the family can hit Disneyland for freethis summer? Why is it that Anheuser-Busch (NYSE :BUD) shareholdersdon't get a case of beer each quarter? (Forget the dividends!) Althoughthese perks are highly unlikely, they do raise a good question: whatrights and privileges do shareholders have? While they may not beentitled to free rides and beer, many investors are unaware of their rightsas shareowners. We discuss what privileges come with being ashareholder and which do not.

Levels of Ownership Rights

Before getting into the nitty-gritty of shareholder rights, let's first look at acompany's pecking order. Every company has a hierarchical structure of rights that accompany the three main classes of securities thatcompanies issue: bonds, preferred stock and common stock.

The priority of each security is best understood by looking at whathappens when a company goes bankrupt. You may think that as anowner you'd be first in line for getting a portion of the company's assets if it went belly up. After all, you did pay for them. In reality, as a commonshareholder you are at the very bottom of the corporate food chain whena company liquidates; you are the corporate equivalent of a hyena thateats only after the lions have eaten their share. During insolvencyproceedings, it is the creditors who first get dibs on the company'sassets to settle their outstanding debts, then the bondholders get firstcrack at those leftovers, followed by preferred shareholders and finallythe common shareholders. This hierarchy forms according to theprinciple of absolute priority.

In addition to the rules of absolute priority, there are other rights thatdiffer with each class of security. For example, usually a company'scharter states that only the common stockholders have voting privilegesand preferred stockholders must receive dividends before commonstockholders. The rights of bondholders are determined differentlybecause a bond agreement, or indenture, represents a contract betweenthe issuer and the bondholder. The payments and privileges thebondholder receives are governed by the indenture (tenets of the
http://community.investopedia.com/stocks/DIShttp://community.investopedia.com/stocks/budhttp://www.investopedia.com/terms/b/bond.asphttp://www.investopedia.com/terms/p/preferredstock.asphttp://www.investopedia.com/terms/c/commonstock.asphttp://www.investopedia.com/terms/c/commonstock.asphttp://www.investopedia.com/terms/p/preferredstock.asphttp://www.investopedia.com/terms/b/bond.asphttp://community.investopedia.com/stocks/budhttp://community.investopedia.com/stocks/DIS


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contract).

Risks and Rewards

Sounds pretty bad for common shareholders, doesn't it? Don't be fooled,common shareholders are still the part owners of the business and if thebusiness is able to turn a profit, then common shareholders gain. Theliquidation preference we described makes logical sense: shareholderstake on a greater risk (they receive next to nothing if the firm goesbankrupt) but they also have a greater reward potential throughexposure to share price appreciation when the company succeeds,

whereas there are usually fewer preferred stocks held by a select few. As such, preferred stocks generally experience less price fluctuation.

Shareholders Rights

A shareholder in a company enjoys certain rights, which are as follows:

to receive the share certificates, on allotment or transfer as the casemay be, in due time.

to receive copies of the abridged Annual Report, the Balance Sheetand the Profit and Loss Account and the Auditors' Report.

to participate and vote in General Meetings either personally or through proxies. to receive Dividends in due time once approved in General Meetings. to receive corporate benefits like rights, bonus etc. once approved.

to apply to Company Law Board (CLB) to call or direct the AnnualGeneral Meeting.

to inspect the minute books of the General Meetings and to receivecopies thereof.

to proceed against the company by way of civil or criminalproceedings. to apply for the winding- up of the company. to receive the residual proceeds.


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Common Shareholders' Six Main Rights

1.Voting Power on Major Issues

This includes electing directors and proposals for fundamental changesaffecting the company such as mergers or liquidation. Voting takes placeat the company's annual meeting. If you can't attend, you can do so byproxy and mail in your vote.

2.Ownership in a Portion of the Company

Previously we discussed the event of a corporate liquidation wherebondholders and preferred shareholders are paid first. However, whenbusiness thrives, common shareholders own a piece of something thathas value. Said another way, they have a claim on a portion of theassets owned by the company. As these assets generate profits, and asthe profits are reinvested in additional assets, shareholders see a returnin the form of increased share value as stock prices rise.

3. The Right to Transfer Ownership

Right to transfer ownership means shareholders are allowed to tradetheir stock on an exchange. The right to transfer ownership might seemmundane, but the liquidity provided by stock exchanges is extremelyimportant. Liquidity is one of the key factors that differentiates stocksfrom an investment like real estate. If you own property, it can takemonths to convert your investment into cash. Because stocks are soliquid, you can move your money into other places almostinstantaneously.

4. An Entitlement to Dividends

Along with a claim on assets, you also receive a claim on any profits acompany pays out in the form of a dividend. Management of a companyessentially has two options with profits: they can be reinvested back intothe firm (hopefully increasing the company's overall value) or paid out inthe form of a dividend. You don't have a say in what percentage of
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profits should be paid out - this is decided by the board of directors.However, whenever dividends are declared, common shareholders areentitled to receive their share.

5.Opportunity to Inspect Corporate Books and Records

This opportunity is provided through a company's public filings, includingits annual report. Nowadays, this isn't such a big deal as publiccompanies are required to make their financials public. It can be moreimportant for private companies.

6.The Right to Sue for Wrongful Acts

Suing a company usually takes the form of a shareholder class-actionlawsuit. A good example of this type of suit occurred in the wake of theaccounting scandal that rocked WorldCom in 2002, after it wasdiscovered that the company had grossly overstated earnings, givingshareholders and investors an erroneous view of its financial health. Thetelecom giant faced a firestorm of shareholder class-action suits as a

result.

Shareholder rights vary from state to state, and country to country, so itis important to check with your local authorities and public watchdoggroups. In North America, however, shareholders rights tend to be moredeveloped than other nations and are standard for the purchase of anycommon stock. These rights are crucial for the protection of

shareholders against poor management. Corporate GovernanceIn addition to the six basic rights of common shareholders, it is vital thatyou thoroughly research the corporate governance policies of acompany. These policies are often crucial in determining how acompany treats and informs its shareholders.


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Shareholder Rights Plan

Despite its name, this plan differs from the standard shareholder rightsoutlined by the government (the six rights we touched on). Shareholder

rights plans outline the rights of a shareholder in a specific corporation. A company's shareholder rights plan, it is usually accessible in theinvestor's relations section of its corporate website or by contacting thecompany directly.

In most cases, these plans are designed to give the company's board of directors the power to protect shareholder interests in the event of anattempt by an outsider to acquire the company. To prevent a hostiletakeover, the company will have a shareholder rights plan that can be

exercised when another person or firm acquires a certain percentage of outstanding shares.

The way a shareholder rights plan may work can be best demonstratedwith an example: let's say Cory's Tequila Co. notices that its competitor,Joe's Tequila Co., has purchased more than 20% of its common shares.

A shareholder rights plan might then stipulate that existing commonshareholders have the opportunity to buy shares at a discount to thecurrent market price (usually a 10-20% discount). This maneuver issometimes referred to as a "flip-in poison pill". By being able to purchasemore shares at a lower price, investors get instant profits and moreimportantly, they dilute the shares held by the competitor, whosetakeover attempt is now more difficult and expensive. There arenumerous techniques like this that companies can put into place todefend themselves against a hostile takeover.

Sometimes There are Little Extras

Are you still looking for other perks? Although free beer may be a littlefar-fetched there are companies that offer shareholders little extras. For instance, Anheuser-Busch does offer its shareholders discounted ratesto some of the company's entertainment parks, among other things.Other companies have been known to give their shareholders smalltokens of their appreciation along with their annual reports. For example,

AT&T (NYSE:ATT) has given shareholders a 10-minute phone card withits annual report, McDonald's (NYSE:MCD) included a voucher for freefries and Starbucks (Nasdaq :SBUX) was gracious enough to give

shareholders a free cup of coffee.
http://community.investopedia.com/stocks/SBUXhttp://community.investopedia.com/stocks/SBUX


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Conclusion

Buying a stock means ownership in a company and ownership gives youcertain rights. While common shareholders might be at the bottom of theladder when it comes to liquidation, this is balanced by other opportunities like share price appreciation. As a shareholder, knowingyour rights is an essential part of being an informed investor - ignoranceis not a defense. Although the Securities and Exchange Commissionand other regulatory bodies attempt to enforce a certain degree of shareholder rights, a well-informed investor who fully understands his or her rights is much less susceptible to additional risks.


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TYPES OF SHAREHOLDERS

Shareholders are generally classified as individual investors or institutional investors. Individual investors are individuals who invest

their own money and institutional investors are organizations that investthe money of others. Institutional investors include insurance companies,banks, pension funds, and investment companies. The number of individual investors has risen over time, with slight decreases duringperiods of inflation or recession.

Institutional investors also have increased in number and influence.While they once concentrated on short-term investments by planningstrategic stock trades, they since have become major players in thelong-term investment market. Moreover, institutional investors havebeen clamoring for a voice in company operations and they are thelargest shareholders in the United States. The major institutionalinvestors are pension funds, which invest retirement money. As a resultof the trend towards concentration of stock in the hands of institutional

investors, companies have become more attentive to their needs.


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TYPES OF SHARES

A company may have many different types of shares that come withdifferent conditions and rights.

The main types of shares are:

Ordinary shares are standard shares with no special rights or restrictions. They have the potential to give the highest financialgains, but also have the highest risk. Ordinary shareholders arethe last to be paid if the company is wound up.

Preference shares typically carry a right that gives the holder preferential treatment when annual dividends are distributed toshareholders. Shares in this category receive a fixed dividend,which means that a shareholder would not benefit from anincrease in the business' profits. However, usually they have rightsto their dividend ahead of ordinary shareholders if the business isin trouble. Also, where a business is wound up, they are likely tobe repaid the par or nominal value of shares ahead of ordinaryshareholders.

Cumulative preference shares give holders the right that, if adividend cannot be paid one year, it will be carried forward tosuccessive years. Dividends on cumulative preference sharesmust be paid, despite the earning levels of the business, providedthe company has distributable profits.

Redeemable shares come with an agreement that the companycan buy them back at a future date - this can be at a fixed date or at the choice of the business. A company cannot issue onlyredeemable shares.

Deferred shares: These shares are those shares which are held by

the founders or pioneer or beginners of the company. They arealso called as Founder shares or Management shares.


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In deferred shares, the right to share profits of the company isdeferred, i.e. postponed till all the other shareholders receive their normal dividends. Being the last claimants of the profits, they havea considerable element of speculation or uncertainty and they

have to bear the greatest risk of loss. The market price of suchshares shows a very wide fluctuation on account of wide dividendfluctuations. Deferred shares have disproportionate voting rights.These shares have a small denomination or face value.

Deferred shares are not transferable if issued by a privatecompany. Deferred shareholders do not enjoy the right of priorityto have shares offered in case of the issue of shares by thecompany. If the company goes into liquidation the deferred

shareholders can get refund of capital and participate in thesurplus capital, if any, after the rights of preference and equityshareholders have been satisfied.

Bonus shares: The word bonus means a gift given free of charge.Bonus shares are those shares which are issued by the companyfree of charge as bonus to the shareholders. They are issued tothe existing shareholders in proportion to their existing shareholdings. It is a kind of gift to the shareholders from the company.It is bonus in the form of shares instead of cash. It is given out of accumulated profits and reserves. These shares have all types of preferences which are available to the existing shares. For example. two bonus shares for five equity shares. The issue of bonus shares is also termed as capitalization of undistributedprofits.Bonus shares is a type of windfall gain to the equity shareholders.

They are advantageous to the equity shareholders as they getadditional shares free of cost and also they earn dividend on themin future.


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STAKEHOLDER

Definition

A person, group, or organization that has direct or indirect stake in anorganization because it can affect or be affected by the organization'sactions, objectives, and policies. Key stakeholders in a businessorganization include creditors, customers, directors, employees,government (and its agencies), owners (shareholders), suppliers,unions, and the community from which the business draws its resources.

Although stakeholding is usually self-legitimizing (those who judgethemselves to be stakeholders are stakeholder ), all stakeholders are notequal and different stakeholders are entitled to different considerations.For example, a companys customers are entitled to fair tradingpractices but they are not entitled to the same consideration as thecompany's employees. See also corporate governance.
http://www.businessdictionary.com/definition/organization.htmlhttp://www.businessdictionary.com/definition/action.htmlhttp://www.businessdictionary.com/definition/objective.htmlhttp://www.businessdictionary.com/definition/policy.htmlhttp://www.businessdictionary.com/definition/policy.htmlhttp://www.businessdictionary.com/definition/objective.htmlhttp://www.businessdictionary.com/definition/action.htmlhttp://www.businessdictionary.com/definition/organization.html


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INTRODUCTION TO STAKEHOLDERS

Lets start with a definition of stakeholders, which are:

Groups / individuals that are affected by and/or have an interest in theoperations and objectives of the business

Most businesses have a variety of stakeholder groups which can bebroadly categorised as follows:


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Stakeholder groups vary both in terms of their interest in the businessactivities and also their power to influence business decisions. Here is auseful summary:

Stakeholder Main Interests Power and influenceShareholders Profit growth, Share price

growth, dividendsElection of directors

Banks &other Lenders

Interest and principal to berepaid, maintain credit rating

Can enforce loan covenantsCan withdraw bankingfacilities

Directors andmanagers

Salary ,share options, jobsatisfaction, status

Make decisions, havedetailed information

Employees Salaries & wages, jobsecurity, job satisfaction &motivation

Staff turnover, industrialaction, service quality

Suppliers Long term contracts, promptpayment, growth of purchasing

Pricing, quality, productavailability

Customers Reliable quality, value for

money, product availability,customer service

Revenue / repeat business

Word of mouthrecommendation

Community Environment, local jobs,local impact

Indirect via local planningand opinion leaders

Government Operate legally, tax receipts, jobs

Regulation, subsidies,taxation, planning


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DIFFERENT TYPES OF STAKEHOLDERS

Shareholders are stakeholders, but not all stakeholders areshareholders. These two terms often are erroneously confused with one

another. There are a number of types of stakeholders, yet acommonality exists among them. They aren't all individuals, but differentgroups of stakeholders may have individual interests. A stakeholder isany person, entity, group or organization that has an interest in another entity.

Legal Stakeholder

The legal definition of a stakeholder is an entity or individual withpossession of something valuable such as money, documents,property until the rightful owner can be found. For example, manystates have unclaimed property departments where people can searchfor money owed to them or someone they know. Other examples of stakeholders might be lost-and-found departments or the section of apolice department for stolen property that has yet to be claimed by thevictim of a robbery or burglary.

Individuals

Individual consumers, investors and shareholders and residents may bestakeholders because they have a monetary or nonmonetary interest inan organization or entity. From an investment standpoint, shareholdersare monetary stakeholders in companies for which they purchase sharesof stock. Residents are stakeholders in the neighborhood association towhich they belong. Both have a bilateral relationship because thestakeholder has an interest in the continued existence of the entity andthe entity provides the stakeholder with something of value.

Community Interest

An example of a community or project stakeholder is a group of residents who are awaiting the arrival of a citys new transit system. Bothindividuals and groups of residents in this case are looking forward tothe benefits they reap from quicker, more efficient transportation, andthe project team anticipates the welcome reception of its finished project.Project stakeholders have an interest in a matter that comes to fruitionthrough project management, planning, development andimplementation.


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Corporate Investment

Within the context of corporate governance and activity, different groupsof stakeholders exist. Employees have a vested interest in the

corporations success as they have devoted their time, talent and energyto working for the organization. In return, employees expect payment for their expertise and qualifications. The corporations board of directors isanother group of stakeholders board members expect the company tofollow their direction and leadership through the guidance they provide toa corporations CEO. Customers or clients are yet another group of stakeholders because they, too, have an interest in the outcome of thecorporation's activities in that they expect quality services and products.

People who will be affected by an endeavour and can influence itbut who are not directly involved with doing the work.

In the private sector, people who are (or might be) affected by anyaction taken by an organization or group. Examples are parents,children, customers, owners, employees, associates, partners,contractors, and suppliers, people that are related or locatednearby. Any group or individual who can affect or who is affected

by achievement of a group's objectives. An individual or group with an interest in a group's or an

organization's success in delivering intended results and inmaintaining the viability of the group or the organization's productand/or service. Stakeholders influence programs, products, andservices.

Any organization, governmental entity, or individual that has astake in or may be impacted by a given approach to environmentalregulation, pollution prevention, energy conservation, etc.

A participant in a community mobilization effort, representing aparticular segment of society. School board members,environmental organizations, elected officials, chamber of commerce representatives, neighborhood advisory councilmembers, and religious leaders are all examples of localstakeholders.


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Market (or Primary) Stakeholders - usually internal stakeholders, arethose that engage in economic transactions with the business. (For example stockholders, customers, suppliers, creditors, and employees)

Non-Market (or Secondary) Stakeholders - usually externalstakeholders, are those who - although they do not engage in directeconomic exchange with the business - are affected by or can affect itsactions. (For example the general public, communities, activist groups,business support groups, and the media)


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DIFFERENCE BETWEEN SHAREHOLDERS ANDSTAKEHOLDERS

Shareholders vs stakeholders

In every company there are shareholders and stakeholders. Theseinvestors both have interests in the company. Whatever happens to thecompany, they will be affected by it. That is why it is important for themto help maintain or, even better, develop the company so that their investments will be worth every single penny.

A shareholder is someone who has financial share in the company. Ashareholder is someone who owns stock in a company. This meansshareholders are somehow part owners of the company. They will beable to earn profits if the company will grow, develop, and earn morethrough the companys producti on.

A stakeholder on the other hand, is someone who has an interest in thecompany; this maybe a financial interest or any other kind of interest.Example of stakeholders are employees and staff. Shareholders canalso be stakeholders because they have interest in the company in thefinancial aspect.

To have a deeper understanding on the differences between ashareholder and a stakeholder, it is best to define them first.

Shareholders are common people who have actually given money to thecompany to be a part owner of the company. The shareholders can buystocks or a portion of the company through the share market.Companies need shareholders to be able to raise capital for thecompany. The shareholders will profit from the company dependingupon the production and how much will the company earn. In addition,

because they have a share in the company, they are the biggeststakeholders in the company. This is because whatever happens in thecompany shareholders will be affected by it directly. If a company profitsthe shareholders will profit through dividends and bonuses. If thecompany suffers a loss, the shareholders will too.

The stakeholder, on the other hand, has interest in the company. Thisinterest may be direct or indirect. If a person is affect by whatever

happens to a company, whether good or bad, he or she is a stakeholder.Employees, their families, customers, and suppliers are some examples


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of stakeholders. Shareholders are stakeholders too because they aredirectly affected by whatever happens to the company. Other organisations also only have stakeholders and no shareholders. Anexample for this is a university, Universities has no shares, but id has

many stakeholders. Its stakeholders include students, teachers,administrators and even janitors.

SUMMARY

1.Shareholders have financial shares in the company while stakeholdershave interests in the company financial or not.

2.Shareholders can be stakeholders, but stakeholders are nto the

shareholders.3.Shareholders are directly affected by whatever happens to thecompany while stakeholders are directly or indirectly affected bywhatever happens to the company.

4.The stakeholders have a big influence on what will happen to acompany while shareholders will only be affected.

5.Shareholders own part of the company, but not all stakeholders do.


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CASE STUDY

Balancing stakeholder needs

A Shell case study

Introduction

A stakeholder is anyone who has an interest in what a business does or an influence upon the business.

Large organisations have many different stakeholder groups. Some areinternal to the business, like employees. Others are external as they areoutside of the business, like government. It is important to identify andbalance the needs and expectations of these groups and to actresponsibly to all of them in order to keep the 'licence to operate, whichis necessary for good business.

Balancing the needs of all stakeholders is particularly important for largeenergy companies like Shell, one of t he worlds largest and mostprofitable multinational companies.

Shell is a global group of energy and petrochemical companies. Its aimis to meet the energy needs of society in ways that are economically,socially and environmentally viable, now and in the future.

Shell's headquarters are in The Hague, the Netherlands, and the parentcompany of the Shell group is Royal Dutch Shell plc, which isincorporated in England and Wales. Shell provides 2% of the worlds oiland 3% of its natural gas. Shell's fuel retail network has around 44,000service stations and it sells transport fuel to some 10 million customers a

day.Global challenges

Oil and gas are non-renewable resources but remain essential for powering the worlds needs. Energy use is increasing due to a growingworld population and higher standards of living. This means moredemand not only for oil and gas but also for other energy sources.

Shell is therefore faced with an enormous challenge to help meet the

needs of the present and future generations, while creating as littlenegative impact as possible to the environment.
http://www.shell.com/http://www.shell.com/


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Shell aims to provide energy safely and responsibly and serve all itsstakeholders, customers and investors effectively.

Two key aims of the Shell Group are:

to engage efficiently, responsibly and profitably in oil, gas,chemicals and other businesses

to participate in the search for and development of other sourcesof energy to meet evolving customer needs and the worldsgrowing demand for energy.

The case study examines how stakeholders influence the achievementof these aims and how Shell seeks to meet the needs of all of itsstakeholders and balance the social, economic and environmentalimpacts of its work.


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Internal stakeholders

Internal stakeholders are seen by the wider community as reflectingShell and how it works.

Shareholders

Shell's main internal stakeholders are its shareholders, employees andsuppliers. Large businesses like Shell, Sainsbury's, Virgin, and M&S areowned by shareholders. Shareholders play a crucial part in the life of thebusiness. They provide a sizeable part of the capital required to set upand run the business. They take a reward from a share of the profits inthe form of a dividend. This varies according to how many shares theyown.

The shareholders choose a Board of Directors to represent them andprovide a direction to the company. This is set out in a long-term planwhich is called a strategy. The directors are responsible for theimplementation of the strategy. Each year the directors must produce a

report for shareholders. This report is presented each year at an AnnualGeneral Meeting of shareholders.

Employees

Another important internal stakeholder group is employees. Shellemploys over 100,000 people worldwide. These include senior international managers specialising in finance, marketing, sales, oil andgas exploration and other aspects of the business. Other employeesinclude geologists, market researchers, site engineers, oil platformworkers, office administrators, business analysts and many more.

As stakeholders, employees are influenced by Shell but also affect howShell operates. The employees' standard of work and commitment tohealth and safety and excellence is vital in order to keep Shell as aleader in the energy field. Mistakes can be costly in terms of reputationand the livelihood of other employees.

A priority at Shell is to respect people. It seeks to provide its staff with

good and safe working conditions and competitive terms of employment.


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This has a positive influence on employees as it keeps them safe andmotivated.

Suppliers

Suppliers are also internal stakeholders and are Shell's partners in thechain of production - for example, in bringing petrol from the oil well tothe petrol pump. Shell has a number of core values that are central toeverything it does. Shell's reputation depends on making sure that itsbusiness actions reflect these core values. Shell works with contractorsand other partners in the supply chain who also must demonstrate thesevalues. If they do not, Shell will not use them.


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External stakeholders - customers and communities

External stakeholders are not part of the business but have a keeninterest in what it does and may influence Shell's decision-making. Shellis committed to satisfying the needs of its external stakeholders.

Customers

Without customers a business would not exist. One of Shell's major objectives therefore is: 'To win and maintain customers by developingand providing products and services which offer value in terms of price,quality, safety and environmental impact, which are supported bytechnological, environmental and commercial expertise.'

Achieving this objective is challenging. Customers want value for moneywhich involves providing the highest quality fuels at competitive prices.Research drives this process.

Safety and environmental impact are key ingredients of the research anddevelopment process. Increasingly customers, concerned aboutpollution and environmental damage, require cleaner, more efficientfuels such as biofuel. There is global interest in liquid biofuels for transport as people travel more. Biofuels also offer the potential to slowthe rate of growth in the world's CO2 emissions.

Shell responds to changes in customer views and seeks to anticipatefuture customer expectations. It aims to help customers use less energyand emit less CO2. Shell products include fuels and lubricants for allforms of transport such as cars, ships, aeroplanes and trains. Shell hasa set of global environmental standards/expectations for all of its

companies. These include: managing greenhouse gases, energyefficiency, control of waste and the impact on water.


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Local communities

Shell's oil and gas operations aim to create economic and socialdevelopment while minimising negative impacts. It seeks to invest in

lasting benefits for the community.Local communities living close to oil refineries have raised concernsover their safety. Shell seeks to overcome these fears and earn the trustof people by taking all the necessary safety measures. This includesoperating the plant safely and making people aware of plans andemergency procedures.

Shell, in its commitment to improve the wellbeing of local communities,has created local partnerships. It has provided health facilities andsupported the development of local schools and universities.

One of Shell's initiatives is Shell LiveWire - an online community for young entrepreneurs wanting to start a business. It provides informationand resources (such as free guides) to help young people turn ideas intobusiness reality.
http://www.shell-livewire.org/http://www.shell-livewire.org/


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External stakeholders - interest groups

Shell needs to work with a range of interest groups. These are decisionmakers and opinion formers.

People and organisations in positions of influence make decisions andform opinions that can affect Shell. These include academics,government, media, non-governmental organisations (NGOs), businessleaders and the financial community. They interact with Shell in differentways:

Governments - Shell has operations in many countries across allregions of the globe. To gain approval to operate in thesecountries it has shown the host governments that it is operating inthe right way. This includes creating jobs, paying taxes andproviding important energy supplies. Shell is also working withgovernments to promote the need for more effective regulation onCO2 emissions.

The business community - Shell supplies to and buys fromhundreds of other businesses.

Other oil companies - Shell works in partnership on projects withother international oil companies and partners, such asgovernment-owned oil companies in the countries in which it

operates. Partnership activities have included building new oil or gas supply lines and new refineries.

The media - it is essential for competitive companies like Shell tocontinue to operate in ways that receive positive press coveragefrom newspapers, television and magazines. This reinforces itsposition in the market and can help to attract new customersthrough a positive reputation.

NGOs are a diverse group of organisations, organised on a local,national or international level and often around specific issues,

such as environment, human rights or health. They vary in their methods, ranginf from providing services and expertise to lobbyingand campaigning organisations. NGOs often seek to influenceother actors, including major brands and big multinationals such asShell. Shell engages and works with a wide variety of NGOs on aregular basis. For example, it works with and learns from morethan 100 scientific and conservation organisations in 40countries. Partnerships with global organisations help Shell toimprove its approach to the environment. The 10-year relationshipwith the International Union for the Conservation of Nature has led


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to changes in its operations that have reduced the environmentalimpact.

Shell is committed to respecting human rights and helping communities.

The search for oil and gas can take energy companies to places withpoor human rights records. Shell uses a variety of tools, often developedwith NGO and think-tank input, to manage risks.

If Shell chooses not to operate in these areas, this opens the door for less principled competitors to exploit workers in these countries. If itstays then it can become part of the solution. Shell will only operate incountries where it is able to follow its business principles.


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Shareholders and resolving conflicts

The start of the case study focused on the importance of shareholders.Shell's main shareholders consist of large institutional stockholders,

employees and the general public.Shell believes that it has a key responsibility to protect shareholders'investment and provide a long-term return competitive with those of other leading companies in the industry. Shell's profits have then beenused to reward shareholders in the form of dividends and to plough backinto research and investment in new products, new forms of energy for the future and better ways of managing fuel reserves.

Shell believes that through stakeholder dialogue and balancing theneeds of different stakeholders it can continue to grow and help meetthe world's energy needs.

Shell employs three criteria in making such decisions. It assesseswhether:

1. the economic impact of the activity is likely to yield a good returnfor shareholders

2. the social impact will be suitable for employees and communities3. the long-term effect of its activity will harm the environment.

To avoid conflict, Shell sets minimum levels that must be met for allthree areas before making a major decision or investment in any one.For example, when planning new activity on land that was previouslyused for other purposes such as timber or agriculture, Shell looks tostrike a balance between the social opportunities or impact and financialreturn or risk.


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Conclusion

It is not easy to balance the needs of stakeholders. In order to bestachieve this balance Shell recognises five areas of responsibility: to

shareholders, customers, employees, suppliers and society.Ongoing communication and dialogue with all of these groups isessential. In this way it is possible to take account of everyones needsand expectations in making decisions for today and the future.

Shell resolves and minimises conflicts between its activities and itsstakeholders through its clear strategies and commitment to corporatevalues. Through balancing social, economic and environmentalconsiderations, Shell seeks to make decisions that maximise value.


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BIBLIOGRAPHY

Websites

http://www.investopedia.com/terms/s/shareholder.asp#axzz274UhIh9l

http://hbr.org/2012/07/what-good-are-shareholders/ar/1

http://smallbusiness.chron.com/importance-shareholders-business-20844.html

http://mikevolker.com/the-importance-of-a-shareholders-agreement/

http://www.ciri.com/content/shareholders/responsibilities.aspx

http://tutor2u.net/business/accounts/stakeholder_theory.htm

http://toostep.com/insight/stakeholders---characteristics-and-types
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