Summary Week 2 - Maria Devina Sanjaya (392626).docx

Maria Devina Sanjaya 392626 Protecting Internal and External Stakeholders: A Summary It is common that companies, especially the large ones, have many stakeholders with different interests and needs that must be properly responded. Often, however, shareholders are prioritized as they provide equity capital to the company to ensure that the business can exist. While equity is important, the supply of other types of fund and resources are also significant, that the parties involved in them deserve the fair treatment from the management. Accountability wise, it is not possible to serve the same attention to all stakeholders at once, but management are supposed to be responsible to them. There are two models that explain this relationship. The first one is the market model that induces management to be accountable and responsible for the shareholders and the main objective would be maximizing shareholders’ value. On the contrary, the relationship model emphasizes that management should ensure that their company is running well to benefit all of the stakeholders. Stakeholders of a company can be classified into two: the direct ones who are impacted by a company’s decisions and actions and the indirect ones who are less obviously impacted. Direct stakeholders include: shareholders, employees, creditors, customers and suppliers, professional service providers, and communities. While indirect stakeholders consist of but not limited to regulators, competitors, and taxpayers. The first direct stakeholder, shareholders, are the main supplier of capital of a company, who also bear most of the corporate risks. In return to that, management is often asked to protect their rights besides increasing their value. In reality, stratification exists between shareholders where minority interests’ right is often abused while controlling shareholders can dictate the management. Second are the employees who play a huge part in a company existence since lacking them would put the company at danger. Under the market model, companies often offer employees company stocks to avoid conflict of interest in maximizing the shareholders’ value. Thirdly, creditors’ interests must also be considered conscientiously, especially if there is insolvency since they are prioritized in processing claim and receiving returns. In the fourth place, companies must do well in protecting the rights of their suppliers and customers. This is due to the fact that they often support better liquidity by extending the payment due and prepaying the products ordered. Fifth, it is also vital to maintain good relationship with professional service providers such as auditors and consultants by treating them fairly to avoid reputational problems. Lastly, surrounding communities must also be considered carefully as

Maria Devina Sanjaya 392626 they often become the source of labor and infrastructure supply. While communities also rely on companies residing near them as they can provide jobs and drive the economy for the locals. Regulators, as indirect stakeholders, supervise and rule how companies operate to ensure that they protect the involved stakeholders. Failing to comply with regulators’ rules may jeopardize the company’s existence as the public may choose to leave the company on its own. While competitors are indirectly impacted as they can succeed or lose when the company is on the reversed condition. Taxpayers are also indirect stakeholders as well-operated companies do not affect them. But when a company is at the edge of failure and the government arranges a ‘bail-out’, the taxpayers may think that they pay to prevent the company goes bankrupt, which is not a favorable case especially when the taxpayers are not interested to the company at all. Finally, we can conclude that companies should address all of their stakeholders fairly and discreetly. Even though the priority and preference vary among companies, but it is crucial for them to not harm any of them.