PDF Shareholders and Stakeholders DD

SHAREHOLDERS
SHAREHOLDERS AND STAKEHOLDERS
EXECUTIVE SUMMARY
Stockholder Theory
Advocates of the stockholder th

theory
eory make their case on the
t he basis of the
different 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 themselves
and that can then be passed on to their shareholders. Other functions of
organizations can be best fulfilled by other kinds of organizations, such
as non-profits and government agencies.
Stakeholder Theory
Advocates of the ststakeholder

akeholder theory make th
their
eir case on the basis of the
fact that businesses owe their existence to a greater community. From
this fact, they argue, comes a basic duty to enrich and improve the well
being of the greater community. If the community becomes
impoverished or dysfunctional, this will interfere with the proper activity
of 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 between

stockholder and stakeholder theory. In different contexts, either theory
may seem like the more true one. Business ethicists often focus on
bridging the gap and showing how a business might pursue the greatest
profit for its shareholders while still behaving in a way that pays ethical
dues to the greater community. Honesty in business accounting is often
taken to be an example of where duties converge.
Regulation
Both stockholder theory and stakeholder theory are primarily concerned

with the internal deliberation that businesses go through when
considering their primary duties. Government regulation is meant to
impose 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 shape
what you feel they should be compelled to do. Regulation often imposes
both stakeholder and stockholder duties on businesses.
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Shareholder
A shareholder or stockholder is an individual or institution (including a

corporation) that legally owns any part of a share of stock in a public or
private corporation.
Stockholders are granted

stock. These rights special privileges depending on the class of
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.
a liquidation.
Stockholders or shareholders are considered by some to be a subset of

stakeholders, which may include anyone who has a direct or indirect
interest in the business entity. For example, labor, suppliers, customers,
the community, etc., are typically considered stakeholders because they
contribute value and/or are impacted by the corporation.
Shareholders in the primary market who buy IPOs provide capital to

corporations; however, the vast majority of shareholders are in the
secondary market and provide no capital directly to the corporation.
Definition of 'Shareholder'
Any person, company, or other institution that owns at least one share in
a company.
A shareholder may also be referred to as a "stockholder."
Shareholders are the owners of a company. They have the potential to

profit if the company does well, but that comes with the potential to lose
if 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 mutual
fund companies, pension funds and hedge funds. Shareholders play an
important role in the financing, operations, governance and control
aspects of a business.
Financing
One of the primary reasons for going public is to raise funds from
investors. In return, the company's founders give up part ownership to
these new investors. Private companies and startups may also raise
funds through private placements, which are share issues to a select
group of individuals and institutions. The founders of a startup company,
including venture capital backers, may also provide additional capital in
exchange for a higher percentage of the ownership. Unlike bond
investors, 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's

operations. They elect directors who appoint and supervise senior
officers, including the chief executive officer and the chief financial
officer. They play an indirect role through the stock market. Investors
stay away from companies that cannot meet earnings expectations but
invest in stocks that consistently beat expectations. Therefore, company
management is under constant pressure to meet and beat sales and
profit projections. Companies that generate significant free cash flow
often face pressure from shareholders to return some of the surplus
cash 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, the
role 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 and

the business media. The chief executive and the chief financial officer
sign off on financial documents, thus making them accountable for errors
and omissions.
Control
Shareholders usually determine who controls a public company. A

widely held company, in which there is not a single majority shareholder,
is vulnerable to hostile takeover attempts. Shareholders can block such
moves if they are satisfied with the current management or if they
believe the offering price is insufficient. Institutional shareholders may
publicly 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 fees
related to regulatory disclosures, and the costs of hosting annual general
meetings, quarterly conference calls and other investor relations events.
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THE FEATURES AND IMPORTANCE OF SHAREHOLDER

AGREEMENTS
A shareholder agreement is an understanding between shareholders

and a corporation, under the law, about various aspects ranging from the
shareholder duties to rights, in relation to the company. The shareholder
agreement is the basis of company inception and paves the way for its
future course. It lays down the guidelines about the duties and the
powers 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 points
and clauses also point out the reasons for having shareholder
agreements.
1.Introduce theshares,
distribution of rights related to pre-emptive
including the issuance,rights
sale,and
or subsequent
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 guidelines
should set out what affects the exigencies have on the corporation and
the 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 speculation

and possibility of any legal entanglement. A carefully written shareholder
agreement helps the functioning and the transition of events in a
corporation. A foolproof agreement needs to concentrate on the
following 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 participants

in 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 good
and professional shareholder agreement. Strict adherence to the details
about the said issues culminates in a finely carved out agreement. A
serious study of the agreement provides valuable insight into the rights
and duties with respect to the corporation and other shareholders, the
visions of the company, and the workforce to achieve these visions. The
company should revise a shareholder agreement regularly for any
amendments and upgrade the issues, keeping in mind the current
scenario.
Frequently seek professional advice from expert professionals, such as

tax 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 the

future. The contents of the shareholder agreement are not bound by law
to be made public. They can be kept confidential or made public
according to the consideration of the shareholders. It is in the best
interest of the company to have a shareholder agreement to avoid any
misunderstanding or inconvenience resulting from the lack of clarity in
dispensing the duties or obligations of the company.
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RIGHTS OF A SHAREHOLDER
Say you just bought stock in Disney (NYSE:DIS

(NYSE:DIS).
). As a part owner of the
company does this mean you and the family can hit Disneyland for free
this summer? Why is it that Anheuser-Busch (NYSE:BUD)
(NYSE:BUD) shareholders
shareholders
don't get a case of beer each quarter? (Forget the dividends!) Although
these perks are highly unlikely, they do raise a good question: what
rights and privileges do shareholders have? While they may not be
entitled to free rides and beer, many investors are unaware of their rights
as shareowners. We discuss what privileges come with being a
shareholder and which do not.
Levels of Ownership Rights
Before getting into the nitty-gritty of shareholder rights, let's first look at a
company's pecking order. Every company has a hierarchical structure of
rights that accompany the three main classes of securities that
companies issue: bonds,
issue: bonds, preferred
preferred stock and common
and common stock.
stock.
The priority of each security is best understood by looking at what

happens when a company goes bankrupt. You may think that as an
owner 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 common
shareholder you are at the very bottom of the corporate food chain when
a company liquidates; you are the corporate equivalent of a hyena that
eats only after the lions have eaten their share. During insolvency
proceedings, it is the creditors who first get dibs on the company's
assets to settle their outstanding debts, then the bondholders get first
crack at those leftovers, followed by preferred shareholders and finally
the common shareholders. This hierarchy forms according to the
principle of absolute priority.
In addition to the rules of absolute priority, there are other rights that
differ with each class of security. For example, usually a company's
charter states that only the common stockholders have voting privileges
and preferred stockholders must receive dividends before common
stockholders. The rights of bondholders are determined differently
because
the a bond
issuer and agreement, or indenture,
the bondholder. represents and
The payments a contract between
privileges the
bondholder receives are governed by the indenture (tenets of the
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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 the
business is able to turn a profit, then common shareholders gain. The
liquidation preference we described makes logical sense: shareholders
take on a greater risk (they receive next to nothing if the firm goes
bankrupt) but they also have a greater reward potential through
exposure 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 case

»
may be, in due time.
to receive copies of the abridged Annual Report, the Balance Sheet
»
and 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

time once approved in General Meetings.
Meetings.
» to receive corporate benefits like rights, bonus etc. once approved.
approved.
to apply to Company Law Board (CLB) to call or direct the Annual
»
General Meeting.
to inspect the minute books of the General Meetings and to receive
»
copies thereof.
to proceed against the company by way of civil or criminal
»
proceedings.
» to apply for the winding-
winding- up of the company.
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 changes
affecting the company

at the company's such
annual as mergers
as mergers
meeting. If youorcan't
liquidation.
attend,Voting takes
you can do place
so by
proxy and mail in your vote.
2.Ownership in a Portion of the Company
Previously we discussed the event of a corporate liquidation where

bondholders and preferred shareholders are paid first. However, when
business thrives, common shareholders own a piece of something that
has value. Said another way, they have a claim on a portion of the
assets owned
the profits are by the company.
reinvested As these
in additional assets
assets, generate profits,
shareholders see aand as
return
in the form of increased share value as stock prices rise.
3. The Right
Right to Transfer Ownership
Right to transfer ownership means shareholders are allowed to trade

their stock on an exchange. The right to transfer ownership might seem
mundane, but the liquidity provided by stock exchanges is extremely
important.
from Liquidity islike
an investment onereal
of the key Iffactors
estate. that property,
you own differentiates
it canstocks
take
months to convert your investment into cash. Because stocks are so
liquid, you can move your money into other places almost
instantaneously.
4. An Entitlement to Dividends
Along with a claim on assets, you also receive a claim on any profits a
company pays out in the form of a dividend. Management of a company
essentially has two options with profits: they can be reinvested back into
the firm (hopefully increasing the company's overall value) or paid out in
the 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 are
entitled to receive their share.
5.Opportunity to Inspect Corporate Books and Records
This opportunity is provided through a company's public filings, including

its annual report. Nowadays, this isn't such a big deal as public
companies are required to make their financials public. It can be more
important for private companies.
6.The Right to Sue for Wrongful Acts
Suing a company usually takes the form of a shareholder class-action

lawsuit. A good example of this type of suit occurred in the wake of the
accounting scandal that rocked WorldCom in 2002, after it was
discovered that the company had grossly overstated earnings, giving
shareholders and investors an erroneous view of its financial health. The
telecom giant faced a firestorm of shareholder class-action suits as a
result.
Shareholder rights vary from state to state, and country to country, so it

is important to check with your local authorities and public watchdog
groups.
developedIn North America,
than other however,
nations shareholders
and are rights
standard for tend to beofmore
the purchase any
common stock. These rights are crucial for the protection of
shareholders against poor management. Corporate Governance
In addition to the six basic rights of common shareholders, it is vital that
you thoroughly research the corporate governance policies of a
company. These policies are often crucial in determining how a
company treats and informs its shareholders.
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Shareholder Rights Plan
Despite its name, this plan differs from the standard shareholder rights
outlined 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 the
investor's relations section of its corporate website or by contacting the
company 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 an
attempt by an outsider to acquire the company. To prevent a hostile
takeover, 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 demonstrated
with 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 common
shareholders have the opportunity to buy shares at a discount to the
current market price (usually a 10-20% discount). This maneuver is
sometimes referred to as a "flip-in poison pill". By being able to purchase
more shares at a lower price, investors get instant profits and more
importantly, they dilute the shares held by the competitor, whose
takeover attempt is now more difficult and expensive. There are
numerous techniques like this that companies can put into place to
defend themselves against a hostile takeover.
Sometimes There are Little Extras
Are you still looking for other perks? Although free beer may be a little
far-fetched there are companies that offer shareholders little extras. For
instance, Anheuser-Busch does offer its shareholders discounted rates
to some of the company's entertainment parks, among other things.
Other companies have been known to give their shareholders small
tokens of their appreciation along with their annual reports. For example,
AT&T (NYSE:ATT) has given shareholders a 10-minute phone card with
its annual report, McDonald's (NYSE:MCD) included a voucher for free
fries and Starbucks (Nasdaq:SBUX)
(Nasdaq:SBUX) was
was gracious enough to give
shareholders a free cup of coffee.
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Conclusion
Buying a stock means ownership in a company and ownership gives you

certain rights. While common shareholders might be at the bottom of the
ladder when it comes to liquidation, this is balanced by other
opportunities like share price appreciation. As a shareholder, knowing
your rights is an essential part of being an informed investor - ignorance
is not a defense. Although the Securities and Exchange Commission
and 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 invest
the 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 during
periods of inflation or recession.
Institutional investors also have increased in number and influence.

While they once concentrated on short-term investments by planning
strategic stock trades, they since have become major players in the
long-term investment market. Moreover, institutional investors have
been clamoring for a voice in company operations and they are the
largest
investorsshareholders in thewhich
are pension funds, United States.
invest The money.
retirement major institutional
As a result
of 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 with
different 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 financial
gains, but also have the highest risk. Ordinary shareholders are
the 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 to
shareholders. Shares in this category receive a fixed dividend,
which means that a shareholder would not benefit from an
increase in the business' profits. However, usually they have rights
to their dividend ahead of ordinary shareholders if the business is
in trouble. Also, where a business is wound up, they are likely to
be repaid the par or nominal value of shares ahead of ordinary
shareholders.

 Cumulative preference shares give holders the right that, if a
dividend cannot be paid one year, it will be carried forward to
successive years. Dividends on cumulative preference shares
must be paid, despite the earning levels of the business, provided
the company has distributable profits.

 Redeemable shares come with an agreement that the company
can 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 only
redeemable shares.

 Deferred shares: These shares are those shares which are held by
the founders or pioneer or beginners of the company. They are
also called as Founder shares or Management shares.
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In deferred shares, the right to share profits of the company is

deferred, i.e. postponed till all the other shareholders receive their
normal dividends. Being the last claimants of the profits, they have
a considerable element of speculation or uncertainty and they
have to bear the greatest risk of loss. The market price of such
shares shows a very wide fluctuation on account of wide dividend
fluctuations. Deferred shares have disproportionate voting rights.
These shares have a small denomination or face value.
Deferred shares are not transferable if issued by a private

company. Deferred shareholders do not enjoy the right of priority
to have shares offered in case of the issue of shares by the
company. If the company goes into liquidation the deferred
shareholders can get refund of capital and participate in the
surplus capital, if any, after the rights of preference and equity
shareholders 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 company
free of charge as bonus to the shareholders. They are issued to
the existing shareholders in proportion to their existing share
holdings. 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
profits. shares is also termed as capitalization of undistributed
Bonus shares is a type of windfall gain to the equity shareholders.
They are advantageous to the equity shareholders as they get
additional shares free of cost and also they earn dividend on them
in future.
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STAKEHOLDER
Definition
A person, group, or organization that has direct or indirect stake in an
organization because it can affect or be affected by the organization's
actions, objectives,
actions, objectives, and policies.
policies. Key stakeholders in a business
organization 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 judge

themselves to be stakeholders are stakeholder ), all stakeholders are not
equal and different stakeholders are entitled to different considerations.
For example, a company’s customers are entitled to fair trading
practices but they are not entitled to the same consideration as the
company's employees. See also corporate governance.
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INTRODUCTION
INTRODUCTION TO STAKEHOLDERS
Let’s start with a

with a definition of stakeholders, which are:
Groups / individuals that are affected by and/or have an interest in the

operations and objectives of the business
Most businesses have a variety of stakeholder groups which can be

broadly categorised as follows:
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Stakeholder groups vary both in terms of their interest in the business

activities and also their power to influence bus
business
iness decisions. Here is a
useful summary:
Stakeholder Main Interests Power and influence
Shareholders Profit growth, Share price Election of directors

growth, dividends
Banks & Interest and principal to be Can enforce loan covenants
other repaid, maintain credit rating Can withdraw banking
Lenders facilities
Directors and Salary ,share options, job Make decisions, have
managers satisfaction, status detailed information
Employees Salaries & wages, job Staff turnover, industrial
security, job satisfaction & action, service quality
motivation
Suppliers Long term contracts, prompt Pricing, quality, product
payment, growth of availability
purchasing
Customers Reliable quality, value for Revenue / repeat business
money, product availability, Word of mouth
customer service recommendation
Community Environment, local jobs, Indirect via local planning
local impact and opinion leaders
Government Operate legally, tax receipts, Regulation, subsidies,
jobs taxation, planning
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DIFFERENT TYPES OF STAKEHOLDERS
Shareholders are stakeholders, but not all stakeholders are

shareholders. These two terms often are erroneously confused with one
another. There are a number of types of stakeholders, yet a
commonality exists among them. They aren't all individuals, but different
groups of stakeholders may have individual interests. A stakeholder is
any 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 with

possession of something valuable – – such as money, documents,
property –
– until the rightful owner can be found. For example, many
states have unclaimed property departments where people can search
for money owed to them or someone they know. Other examples of
stakeholders might be lost-and-found departments or the section of a
police department for stolen property that has yet to be claimed by the
victim of a robbery or burglary.
Individuals
Individual consumers, investors and shareholders and residents may be

stakeholders because they have a monetary or nonmonetary interest in
an organization or entity. From an investment standpoint, shareholders
are monetary stakeholders in companies for which they purchase shares
of stock. Residents are stakeholders in the neighborhood association to
which they belong. Both have a bilateral relationship because the
stakeholder has an interest in the continued existence of the entity and
the 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 city’s new transit system. Both
system. Both
individuals and groups of residents in this case are looking forward to
the benefits they reap from quicker, more efficient transportation, and
the project team anticipates the welcome reception of its finished project.
Project stakeholders have an interest in a matter that comes to fruition
through project management, planning, development and
implementation.
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Corporate Investment
Within the context of corporate governance and activity, different groups

of stakeholders exist. Employees have a vested interest in the
corporation’s success as they have devoted their time, talent and energy
to working for the organization. In return, employees expect payment for
their expertise and qualifications. The corporation’s board of directors is
another group of stakeholders –
stakeholders – board
board members expect the company to
follow their direction and leadership through the guidance they provide to
a corporation’s CEO. Customers or clients are yet another group of
stakeholders because they, too, have an interest in the outcome of the
corporation's activities in that they expect quality services and products.
 People who will be affected by an endeavour and can influence it

but who are not directly involved with doing the work.

In the private sector, people who are (or might be) affected by any
action taken by an organization or group. Examples are parents,
children, customers, owners, employees, associates, partners,
contractors, and suppliers, people that are related or located
nearby. 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 in
maintaining the viability of the group or the organization's product
and/or service. Stakeholders influence programs, products, and
services.
 Any organization, governmental entity, or individual that has a

stake in or may be impacted by a given approach to environmental
regulation, pollution prevention, energy conservation, etc.
 A participant in a community mobilization effort, representing a

particular segment of society. School board members,
environmental organizations, elected officials, chamber of
commerce representatives, neighborhood advisory council
members, and religious leaders are all examples of local
stakeholders.
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Market (or Primary) Stakeholders - usually internal stakeholders, are

those that engage in economic transactions with the business. (For
example stockholders, customers, suppliers, creditors, and employees)
Non-Market (or Secondary) Stakeholders - usually external

stakeholders, are those who - although they do not engage in direct
economic exchange with the business - are affected by or can affect its
actions. (For example the general public, communities, activist groups,
business support groups, and the media)
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DIFFERENCE BETWEEN SHAREHOLDERS AND

STAKEHOLDERS
Shareholders vs stakeholders
In every company there are shareholders and stakeholders. These

investors both have interests in the company. Whatever happens to the
company, they will be affected by it. That is why it is important for them
to 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. A

shareholder is
is someone who owns stock in a company. This means means
shareholders are somehow part owners of the company. They will be
able to earn profits if the company will grow, develop, and earn more
through the company’s production.
production.
A stakeholder on the other hand, is someone who has an a n in

interest
terest iin
n tthe
he
company; this maybe a financial interest or any other kind of interest.
Example of stakeholders are employees and staff. Shareholders can
also be stakeholders because they have in
interest
terest in the comp
companyany in the
financial aspect.
To have a deeper understanding on the differences between a

shareholder and a stakeholder, it is best to define them first.
Shareholders are common people who have actually given money to the
company to be a part owner of the company. The shareholders can buy
stocks or a portion of the company through the share market.
Companies
company. Theneed shareholders
shareholders will toprofit
be from
able the
to raise capital
company for the
depending
upon the production and how much will the company earn. In addition,
because they have a share in the company, they are the biggest
stakeholders in the company. This is because whatever happens in the
company shareholders will be affected by it directly. If a company profits
the shareholders will profit through dividends and bonuses. If the
company suffers a loss, the shareholders will too.
The stakeholder, on the other hand, has interest in the company. This
interest 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
K.C.COLLEGE Page 23

SHAREHOLDERS
of stakeholders. Shareholders are stakeholders too because they are

directly affected by whatever happens to the company. Other
organisations also only have stakeholders and no shareholders. An
example 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 stakeholders

have 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 the
company while stakeholders are directly or indirectly affected by
whatever happens to the company.

4.The stakeholders have a big influence on what will happen to a
company while shareholders will only be affected.
5.Shareholders own part of the company, but not all stakeholders do.
K.C.COLLEGE Page 24

SHAREHOLDERS
CASE STUDY
Balancing stakeholder needs
A Shell case study
Introduction
A stakeholder is a
anyone
nyone who has an interest in what a business does or
an influence upon the business.
Large organisations have many different stakeholder groups. Some are

internal to the business, like employees. Others are external as they are
outside of the business, like government. It is important to identify and
balance the needs and expectations of these groups and to act
responsibly to all of them in order to keep the 'licence to operate, which
is necessary for good business.
Balancing the needs of all stakeholders is particularly important for large

energy companies like Shell,
Shell, one of tthe
he world”s largest and most
profitable multinational companies.
Shell is a global group

group of energy and petrochemical companies. Its aim
is 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 parent
company of the Shell group is Royal Dutch Shell plc, which is
incorporated in England and Wales. Shell provides 2% of the world”s oil
and 3% of its natural gas. Shell's fuel retail network has around 44,000
service 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 world”s needs.
needs. Energy use is increasing due to a growing
world population and higher standards of living. This means more
demand 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 little
negative impact as possible to the environment.
K.C.COLLEGE Page 25

SHAREHOLDERS
Shell aims to provide

p rovide energy safely
sa fely and responsibly and s
serve
erve all its
stakeholders, 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 sources
of energy to meet evolving customer needs and the world”s
growing demand for energy.
The case study examines how stakeholders influence the achievement

of these aims and how Shell seeks to meet the needs of all of its
stakeholders and balance the social, economic and environmental
impacts of its work.
K.C.COLLEGE Page 26

SHAREHOLDERS
Internal stakeholders
Internal stakeholders are seen by the wider community as reflecting

Shell and how it works.
Shareholders
Shell's main internal stakeholders are its shareholders, employees and

suppliers. Large businesses like Shell, Sainsbury's, Virgin, and M&S are
owned by shareholders. Shareholders play a crucial part in the life of the
business. They provide a sizeable part of the c capital
apital required to set up
and run the business. They take a reward from a share of the profits in
the form of a dividend. This varies according to how many shares they
own.
The shareholders choose a Board of Directors to represent them and

provide a direction to the company. This is set out in a long-term plan
which is called a strategy. The directors are responsible for the
implementation of the strategy. Each year the directors must produce a
report for shareholders. This report is presented each year at an Annual
General Meeting of shareholders.
Employees
Another important internal stakeholder group is employees. Shell

employs over 100,000 people worldwide. These include senior
international managers specialising in finance, marketing, sales, oil and
gas exploration and other aspects of the business. Other employees
include geologists, market researchers, site engineers, oil platform
workers, office administrators, business analysts and many more.
As stakeholders, employees are influenced by Shell but also affect how
Shell operates. The employees' standard of work and commitment to
health and safety and excellence is vital in order to keep Shell as a
leader in the energy field. Mistakes can be costly in terms of reputation
and 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.
K.C.COLLEGE Page 27

SHAREHOLDERS
This has a positive influence on employees as it keeps them safe and

motivated.
Suppliers
Suppliers are also internal stakeholders and are Shell's partners in the
chain of production - for example, in bringing petrol from the oil well to
the petrol pump. Shell has a number of core values that are central to
everything it does. Shell's reputation depends on making sure that its
business actions reflect these core values. Shell works with contractors
and other partners in the supply chain who also must demonstrate these
values. If they do not, Shell will not use them.
K.C.COLLEGE Page 28

SHAREHOLDERS
External stakeholders - customers and communities
External stakeholders are not part of the business but have a keen
interest in what it does and may influence Shell's decision-making. Shell
is 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 developing
and providing products and services which offer value in terms of price,
quality, safety and environmental impact, which are supported by
technological, environmental and commercial expertise.'
Achieving this objective is challenging. Customers want value for money

which involves providing the highest quality fuels at competitive prices.
Research drives this process.
Safety and environmental impact are key ingredients of the research and
development process. Increasingly customers, concerned about
pollution and environmental damage, require cleaner, more efficient
fuels such as biofuel. There is global interest in liquid biofuels for
transport as people travel more. Biofuels also offer the potential to slow
the rate of growth in the world's CO2 emissions.
Shell responds to changes in customer views and seeks to anticipate

future customer expectations. It aims to help customers use less energy
and emit less CO2. Shell products include fuels and lubricants for all
forms of transport such as cars, ships, aeroplanes and trains. Shell has
a set of global environmental standards/expectations for all of its
companies. These include: managing greenhouse gases, energy
efficiency, control of waste and the impact on water.
K.C.COLLEGE Page 29

SHAREHOLDERS
Local communities
Shell's oil and gas operations aim to create economic and social
development while minimising negative impacts. It seeks to invest in
lasting benefits for the community.
Local communities living close to oil refineries have raised concerns

over their safety. Shell seeks to overcome these fears and earn the trust
of people by taking all the necessary safety measures. This includes
operating the plant safely and making people aware of plans and
emergency procedures.
Shell, in its commitment to improve the wellbeing of local communities,

has created local partnerships. It has provided health facilities and
supported 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 busi
business.
ness. It provides information
and resources (such as free guides) to help young people turn ideas into
business reality.
K.C.COLLEGE Page 30
SHAREHOLDERS
External stakeholders - interest groups
Shell needs to work with a range of interest groups. These are decision
makers and opinion formers.
People and organisations in positions of influence make decisions and

form opinions that can affect Shell. These include academics,
government, media, non-governmental organisations (NGOs), business
leaders and the financial community. They interact with Shell in different
ways:
 Governments - Shell has operations in many countries across all

regions of the globe. To gain approval to operate in these
countries it has shown the host governments that it is operating in
the right way. This includes creating jobs, paying taxes and
providing important energy supplies. Shell is also working with
governments to promote the need for more effective regulation on
CO2 emissions.
 The business community - Shell supplies to and buys from
hundreds of other businesses.
 Other oil companies - Shell works in partnership on projects with
other international oil companies and partners, such as
government-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 to
continue to operate in ways that receive positive press coverage
from newspapers, television and magazines. This reinforces its
position in the market and can help to attract new customers
 through
NGOs area positive
a diversereputation.
group of organisations, organised on a local,
national or international level and often around specific issues,
such as environment, human rights or health.
health. They vary in their
methods, ranginf from providing services and expertise to lobbying
and campaigning
campaigning organisations. NGOs often seek to influence
other actors, including major brands and big multinationals such as
Shell. Shell engages and wo works
rks with a wide variety of NGOs on a
regular basis. For example, it works with and learns from more
than 100 scientific and conservation organisations in 40
countries. Partnerships with global organi
organisations
sations help Shell to
improve its approach to the environment. The 10-year relationship
with the International Union for the Conservation of Nature has led
K.C.COLLEGE Page 31
SHAREHOLDERS
to changes in its operations that have reduced the environmental

impact.
Shell is committed to respecting human rights and helping communities.

The search for oil and gas can take energy companies to places with
poor human rights records. Shell uses a variety of tools, often developed
with 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 it
stays then it can become part of the solution. Shell will only operate in
countries where it is able to follow its business principles.
K.C.COLLEGE Page 32
SHAREHOLDERS
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 been
used to reward shareholders in the form of dividends and to plough back
into 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 the

needs of different stakeholders it can continue to grow and help meet
the world's energy needs.
Shell employs three criteria in making such decisions. It assesses

whether:
1. the economic impact of the activity is likely to yield a good return

for shareholders
2. the social impact will be suitable for employees and communities
communities
3. the long-term effect of its activity will harm th
the
e environment.
To avoid conflict, Shell sets minimum levels that must be met for all
three areas before making a major decision or investment in any one.
For example, when planning new activity on land that was previously
used for other purposes such as timber or agriculture, Shell looks to
strike a balance between the social opportunities or impact and financial
return or risk.
K.C.COLLEGE Page 33
SHAREHOLDERS
Conclusion
It is not easy to balance the needs of stakeholders. In order to best

achieve this balance Shell recognises five areas of responsibility: to
shareholders, customers, employees, suppliers and society.
Ongoing communication and dialogue with all of these groups is

essential. In this way it is possible to take account of everyone”s needs
and expectations in making decisions for today and the future.
Shell resolves and minimises conflicts between its activities and its
stakeholders through its clear strategies and commitment to corporate
values. Through balancing social, economic and environmental
considerations, Shell seeks to make decisions that maximise value.
K.C.COLLEGE Page 34
SHAREHOLDERS
BIBLIOGRAPHY
Websites –
http://www.investopedia.com/terms/s/shareholder.asp#axzz274UhIh9l
http://www.investopedia.com/terms/s/shareholder.asp#axzz274UhIh9l
http://hbr.org/2012/07/what-good-are-shareholders/ar/1
http://hbr.org/2012/07/what-good-are-shareholders/ar/1
http://smallbusiness.chron.com/importance-shareholders-business-
20844.html
20844.html
http://mikevolker.com/the-importance-of-a-shareholders-agreement/
http://mikevolker.com/the-importance-of-a-shareholders-agreement/
http://www.ciri.com/content/shareholders/responsibilities.aspx
http://www.ciri.com/content/shareholders/responsibilities.aspx
http://tutor2u.net/business/accounts/stakeholder_theory.htm
http://tutor2u.net/business/accounts/stakeholder_theory.htm
http://toostep.com/insight/stakeholders---characteristics-and-types
http://toostep.com/insight/stakeholders---characteristics-and-types

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Advocates of the stockholder th

Advocates of the ststakeholder

Business ethics is primarily concerned with the debate between

Both stockholder theory and stakeholder theory are primarily concerned

A shareholder or stockholder is an individual or institution (including a

Stockholders are granted

 The right to sell their shares,

Stockholders or shareholders are considered by some to be a subset of

Shareholders in the primary market who buy IPOs provide capital to

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

Shareholders are the owners of a company. They have the potential to

THE IMPORTANCE OF SHAREHOLDERS IN BUSINESS

Shareholders are the owners of companies. A small business may have

Shareholders play both direct and indirect roles in a company's

Public companies usually have formal corporate governance policies,

and general business conditions with shareholders, market analysts and

Shareholders usually determine who controls a public company. A

Public companies incur certain additional costs related to shareholders.

THE FEATURES AND IMPORTANCE OF SHAREHOLDER

A shareholder agreement is an understanding between shareholders

Essentials Of A Shareholder Agreement

Experts consider the following points and clauses to be prudent when

4.Construct the guidelines of conduct in the case of any exigencies,

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

Vital Points For Shareholders

Draft the shareholder agreement carefully to minimize future speculation

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 participants

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

8.Methodology of dispute settlement.

10.Issues related to compensation and remuneration.

11.The appointment of professional advisors.

Frequently seek professional advice from expert professionals, such as

botherations that may trouble the company or the shareholder(s) in the

Say you just bought stock in Disney (NYSE:DIS

Levels of Ownership Rights

The priority of each security is best understood by looking at what

Risks and Rewards

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

to receive the share certificates, on allotment or transfer as the case

» to receive Dividends in due time

Common Shareholders' Six Main Rights

1.Voting Power on Major Issues

This includes electing directors and proposals for fundamental changes

affecting the company

2.Ownership in a Portion of the Company

Previously we discussed the event of a corporate liquidation where

Right to transfer ownership means shareholders are allowed to trade

profits should be paid out - this is decided by the board of directors.

5.Opportunity to Inspect Corporate Books and Records

This opportunity is provided through a company's public filings, including

6.The Right to Sue for Wrongful Acts

Suing a company usually takes the form of a shareholder class-action

Shareholder rights vary from state to state, and country to country, so it

Shareholder Rights Plan

Sometimes There are Little Extras

Buying a stock means ownership in a company and ownership gives you