Corporate Governance (The Changing Role of Major Stakeholders)

Corporate governance is simply the system by which corporate entities are directed and controlled. The major stakeholders in any corporate setup include shareholders, employees, creditors, suppliers, customers, environmentalists, and the community or society in which the entity operates. Corporate governance issues are receiving greater attention in both developed and developing countries as a result of the increasing recognition that a firm’s corporate governance affects both its economic performance and its ability to access long-term, low-cost investment capital.

Non-governmental organisations (NGOs) also have core “client” groups whom they represent or assist.

Currently, the ownership of corporate governance is going through a new phase due to the changing world economic and social order. The focus of corporate governance has shifted from shareholders as the dominant force to a broader group of stakeholders. This shift recognises the dynamism of business and the influence of other stakeholder groups.

It is also a response to the social and environmental concerns of the community and the public. Typical examples include consumer influence in the case of Nike (slave wages), community influence with regard to Shell in Nigeria over environmental degradation, and the fashion industry’s treatment of wildlife through the use of ivory and fur.

Shareholders and Other Financial Stakeholders

Traditionally, shareholders have always had a strong influence on organisations, whether as sole investors in businesses, donors to charities, or contributors to the public treasury. Good corporate governance with regard to shareholders has been measured in terms of profit, growth, and appreciation in share value, all aimed at retaining shareholder confidence.

Studies conducted in Europe and the United States have shown that investors are willing to pay a premium for well-governed companies. In this regard, the quality of a company is underpinned by superior share price performance. This finding is further supported by evidence that companies with the highest rankings in good governance also achieved the highest financial returns.

Changing Roles f Major Stakeholders

The role and influence of shareholders have been changing, particularly in relation to social and environmental concerns. These issues have exposed businesses to increased scrutiny, forcing them to invest in projects and operations that factor environmental considerations into their corporate objectives.

Clients, Customers and Target Groups

Businesses that operate in competitive markets usually rank their clients and customers as the most influential stakeholder group. Clients exert enormous pressure on the corporate governance standards of their suppliers, hence the axiom that “the customer is king.” This reflects the critical position of customers in ensuring the sustainability of a business entity.

Non-Governmental Organisations

Non-governmental organisations (NGOs) also have core “client” groups whom they represent or assist. Significant efforts are being made within the NGO and voluntary sectors to emphasise the importance of these client groups by engaging them in consultation and understanding their needs, much like businesses seek to understand their customers.

Government

Government departments are also undergoing significant reorientation towards their “client” groups. This is aligned with the devolution or decentralisation of power to local communities, as evidenced by the district assembly concept. This development presents an interesting shift in influence and power within the public sector, which has traditionally been hierarchical, rigid, and controlled to meet the needs of a single client, namely the government.

Employees

Organisations consist of people. The influence of paid employees within an organisation varies depending on the industry, business processes, and level of automation. Where workforces lack representation, they tend to have limited direct influence on their employers. However, employers may recognise the importance of their workers by offering competitive wages above average pay rates, motivational allowances, and continuous on-the-job training.

Suppliers

Suppliers play an important role in the value chain, serving as the source of inputs that facilitate business operations. Most suppliers operate within responsive relationships, particularly where they provide goods or services to producers. Dependable suppliers are essential for business sustainability. Advances and innovations in technology further require constant adaptability and strong collaboration between suppliers and business entities.

Suppliers play an important role in the value chain, serving as the source of inputs that facilitate business operations. Most suppliers operate within responsive relationships, particularly where they provide goods or services to producers. Dependable suppliers are essential for business sustainability. Advances and innovations in technology further require constant adaptability and strong collaboration between suppliers and business entities.

Ensuring that an organisation’s structures, systems, and capabilities are in place to manage resources and assets effectively and efficiently is a fundamental responsibility of governing boards. Management must be provided with the necessary tools to manage effectively. Maximising value on behalf of an organisation’s many stakeholders has become increasingly critical to corporate success and sustainability.

Consistency is a vital factor in achieving good corporate governance, just as it is essential for high performance in any organisation. Success depends on highly motivated, well-informed individuals who are committed to the organisation and who provide the drive and discipline required to consistently deliver planned outcomes.

However simple or comprehensive an organisation’s structures and systems may be, without the will and determination to maintain and improve service delivery, there is little chance of achieving good corporate governance in a manner that earns the long-term trust and confidence of stakeholders.

(The writer is a financial and management consultant and an advocate of good corporate governance.)