3. Stakeholders theory
　　3.1 Definition and components of stakeholders
　　<1>Definition: any entity （person, group or possibly non-human entity） that can affect or 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.
　　<2>Components: directors; employee; suppliers; customers; bank; lenders; regulators; government; community and environmental pressure groups, etc.
　　3.2 Classifications of stakeholders
　　<1> Internal, connected, and external stakeholders
　　a. Internal: employees, management
　　b. Connected: shareholder, customers, suppliers, competitors, trade unions
　　c. External: government, the public, pressure group, opinion leaders
　　<2> Narrow and wide stakeholders （affected by the organization’s strategy, how much the organization affects the stakeholder）
　　a. Narrow （most affected）： managers, employees, supplies, dependent customers, shareholders
　　b. Wide （less affected）： government, wide community, less dependent customers
　　<3> Primary and secondary stakeholders （level of participation will affect the company’s continuing as a going concern or not, how much the stakeholder affected the organization）
　　a. Primary （most affected）： customers, suppliers, government
　　b. Secondary （less affected）： broad communities, management
　　<4> Active and passive （seek to participate in the organization’s activities）
　　a. Active: managers, shareholders, regulators or pressure groups
　　b. Passive: shareholders, local communities, government
　　3.3 Stakeholder theory
　　<1> Content of stakeholder theory
　　a. Stakeholders’ contribution and requirement: stakeholders contribute for company’s development and expect the company to satisfy their interest.
　　b. Different goals and claims of stakeholder: each stakeholder group has different goals and expectations, so they have different claim upon the organization.
　　c. Company’s corporate responsibility: companies should take corporate accountability to not only shareholder but also a broad range of stakeholder.
　　d. Manager’s reconciliation of conflict of interest: management, as agent to all other stakeholders, should try to reconcile the competing interests of stakeholders based on maximum of long-term value. （Mendelow Matrix）
　　<2>Stakeholders’ claim
　　a. Definition: what does stakeholder want from an organization?
　　b. The legitimacy of each stakeholder’s claim will depend on your ethical and political perspective on whether certain groups should be considered as stakeholders.
　　<3> Different views of organizations’ reaction to stakeholder concerns
　　a. Instrumental view – mainly economic/legal responsibilities with the aim of maximizing profits and no moral standpoint of its own. （Company believes fulfilling the responsibility to stakeholders will increase their profits.）
　　b. Normative view – ethical/philanthropic responsibilities as well as economic/legal, and have moral duties toward stakeholders. Company accepts a responsibility to sustain social cohesion.
　　3.4 Role and interest of stakeholders
　　3.4.1 Internal stakeholder
　　<1>Director
　　a. Roles:
　?。╝） Executive director responsible for corporation management of the company
　　（b） NEDs focus on monitor and control company in best interest of stakeholders
　　b. Interests:
　?。╝） Remuneration package
　?。╞） Status/reputation/power
　　<2> Company secretary
　　a. Roles:
　?。╝） Ensure compliance with company laws and regulations and keep board members informed of their legal responsibilities
　　（b） Attend meetings and prepare minutes to follow up, administer company’s affairs
　?。╟） Help board to deal with corporate governance matters and improve corporate governance of listed company
　　b. Interests:
　?。╝） Remuneration package
　?。╞） Security and job stability
　?。╟） Career path and development
　　（d） Status/position
　　<3> Sub-board management
　　a. Roles:
　?。╝） Day to day running of business and implement board policies
　　（b） Risk management and internal control of the company
　?。╟） Concern with corporate governance and report to board of director
　　b. Interests:
　?。╝） Remuneration package
　?。╞） Security and job stability
　?。╟） Career path and development
　?。╠） Status/position
　　<4> Employees
　　a. Roles:
　?。╝） Implementation of strategy and comply with the corporate governance systems in place and adopt appropriate culture
　?。╞） Perform routine activities and comply with internal controls
　?。╟） Give feedback, report breaches to senior management or board
　　b. Interests:
　?。╝） Remuneration package
　　（b） Security and job stability
　?。╟） Career path and development
　　（d） Status/position
　　<5> Trade unions
　　a. Roles:
　?。╝） Distribute information to employee and protect employee interests
　?。╞） Secure employee benefit and enforce government regulations/employee legislations, e.g. protection of whistleblowers
　　b. Interests:
　　（a） Influence/ power/impact
　　3.4.2 External stakeholder
　　<1> Suppliers
　　a. Roles:
　?。╝） Provide material as operation input, giving financial credit through discount and extension of payment period
　　b. Interests:
　　（a） Profitable sales, payment of goods, long-term relationship
　?。╞） Cost and quality of materials, reliability of delivery
　　<2> Customer:
　　a. Roles:
　　（a） Realize company value through purchase of its product
　　b. Interests:
　?。╝） Value for money of goods and services （material needs and deeper moral needs）
　?。╞） Customer power increase and take their business elsewhere
　　<3> Auditors
　　a. Roles:
　　（a） Independent review of company’s F/S （whether it’s give a true and fair view）
　?。╞） Increase investors’ confidence （together with company’s auditor committees and effective accounting standard）
　　b. Interests:
　?。╝） Audit fees
　?。╞） Reputation
　　（c） Quality of relationship
　?。╠） Compliance with audit requirements
　　<4> Regulators
　　a. Roles:
　?。╝） Establish rules and standards
　?。╞） Carry out inspections and audit to maintain shareholder/stakeholder confidence
　　b. Interests:
　?。╝） Compliance with regulations
　　<5> Government
　　a. Roles:
　?。╝） Control of taxes regulations
　　（b） Establish and determine the overall regulatory and control climate （laws） in a country
　?。╟） Provide funds or offer tax incentives to encourage investment
　　（d） Influence companies and the relationship between companies.
　　b. Interests:
　?。╝） Compliance with laws
　　（b） Taxes revenue
　?。╟） Level of employment
　?。╠） Social and environment responsibility
　　<6> Stock exchange
　　a. Roles:
　　（a） Provide a means for companies to raise money and invertors to transfer shares
　?。╞） Establishing rules and regulations for listed company, impact the way corporate governance is implemented
　　b. Interests:
　?。╝） Compliance with rules and regulations
　　<7> Institutional investors
　　a. Roles:
　?。╝） Monitoring and performance
　?。╞） Intervention to improve good corporate governance
　　b. Interests:
　　（a） Security of funds invested
　?。╞） Value of shares and dividend payments
　　（c） Timely information received from company
　　<8> Small investors
　　a. Roles:
　?。╝） Limited power and influence
　　b. Interests:
　?。╝） Maximization of shareholders’ value
　　（b） Be treated equally
　　3.5 Institutional investors
　　<1> Definition: Institutional investors manage funds invested by individuals
　　<2> Four types of institutional investor:
　　a. Pension funds
　　b. Insurance companies
　　c. Investment and unit trust （set up to invest in portfolios of share）
　　d. Venture capital organization （invest in expending companies）
　　<3> Role of institutional investors
　　a. Monitoring performance （voting on the board, attending meeting, contributing to decision making and corporate governance）
　　b. Intervention （unsuitable or risky strategy; poor operational performance; NEDs failing to hold management to account; major failures in internal controls; failure to comply with laws and regulations or governance codes; excessive levels of directors’ remuneration; poor attitudes towards corporate social responsibility）
　　<4> Means of exercising institutional investor’s influence
　　a. One-to-one meeting to discuss strategy, whether objectives are being achieved, how the company is achieving its objectives, the quality of management.
　　b. Voting （in AGM or EGM）
　　c. List of underperforming companies
　　d. Contributing to corporate governance rating system （that measure key corporate governance performance indicators such as number of NEDs, role of the broad and the transparency of the company）
　　3.6 Stakeholder power interest Matrix （Mendelow）
　　<1> Power/Interest matrix
　　a. The framework is often used to understand the influence that each stakeholder has over an organization’s objectives and strategy.
　　b. It estimates which stakeholders have the most influence by *uating each stakeholder’s individual power and interest to the organization’s affairs. The stakeholders with the highest combination of power and interest are likely to be those with the most actual influence over objectives.
　　c. It describes the political context within which an individual strategy would be pursued by classifying stakeholders in two dimensions:
　?。╝） The power they hold
　　（b） The extent to which they are likely to show interest in supporting or opposing a particular strategy
　　2012ACCA《P1專業(yè)會計師》基礎(chǔ)課程講義（4）
　　<2> The matrix indicates the type of relationship which organizations typically might establish with stakeholder groups in the different quadrants
　　a. Segment A: minimum effort （such as small investors）
　　b. Segment B: keep informed, they have limited ability to influence strategy but they can influence more powerful stakeholders by lobbying （such as community representatives）
　　c. Segment C: keep satisfied, they can move to segment D so that they should be treated with care （such as large institutional shareholders）
　　d. Segment D: key player, they participate in decision making and strategy must be accepted by them （such as major customer）
　　<3> Two steps in completing the matrix:
　　a. Place the stakeholder in the appropriate quadrant of the matrix
　　b. Assess their attitude with ‘+’ or ‘-’
　　<4> Each of these group has three basic choices:
　　a. Loyalty. They can do as they are told.
　　b. Exit. E.g. by selling their shares, or get a new job
　　c. Voice. They can stay and change the system. Those who choose voice are those who can influence the organization
　　<5> Scholes （1998） suggests the following strategies to deal with each quadrant:
　　a. Segment A – Direction
　?。╝） Lack of interest and power
　?。╞） Open to influence
　　（c） Normally accept what they are told and follow instructions
　　b. Segment B – Education / Communication
　?。╝） For supportive stakeholders: may lobby others to support the strategy
　?。╞） For dissenters: stop them joining forces with more powerful dissenters in C or D
　　c. Segment C – Intervention / Persuasion
　?。╝） Keep the occupants satisfied to avoid them gain interests and shifting into D
　　（b） Reassuring them of the likely outcomes of the strategy well in advance
　　d. Segment D – Participation
　?。╝） Major drivers of change or major opponents
　?。╞） Firstly education / communication , then discuss the implementation issues
　　3.7 Compare stakeholder theory with agency theory and company law
　　<1> Agency theory: Agent （manager） and principal （shareholders）； Make as much money as possible, in the interest of the owners.
　　<2> Company law: managers have fiduciary and legal obligations to maximize shareholder wealth.
　　<3> Stakeholder theory: Managers as agents to all other stakeholders, try to reconcile their interests; emphasis on the ethical and social responsibility.
　　4 Major issues in corporate governance
　　<1> Duty of directors: fiduciary duty to act in the best interests of the company, use their power properly, avoid conflict of interest and exercise a duty of care
　　<2> Composition and balance of the board: balance in member （director and NEDs）， skills and talents （specialist）， level and age （help succession planning）
　　<3> Reliability of financial reporting and external auditors: together with external auditors, greater regulation of practices led to greater transparency and reduces the risk of investors
　　<4> Directors’ remuneration and rewards: corporate governance codes avoid directors being paid excessive salaries and bonuses
　　<5> Responsibility of the board for risk management and internal control system: set up adequate system for measurement and reporting of risk
　　<6> Right and responsibility of shareholder: shareholders should have the right to receive all material information which may affect the value of their investment and to vote on measures affecting the organization’s governance
　　<7> Corporate social responsibility and business ethics: mutual benefit relationship between company and shareholder create sustained business success and steady long-term growth in corporate value
　　<8> Public and non-governmental corporate governance: governance and non-governance bodies should also apply corporate governance （integrity, supervise, ensure appropriate control and risk management and reporting system）
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