The role of stakeholders in corporate governance

 Stakeholder – is a party that has an interest in a company and can either affect or be
affected by the business. 
    – The primary stakeholders in a typical corporation are its investors,
employees, customers, and suppliers
- contributes by helping to handle multiple and often conflicting stakes
- they have the means to influence 

“The corporate governance framework should recognize the rights of stakeholders as

established by law and encourage active cooperation between corporations and stakeholders in
creating wealth, jobs, and the sustainability of financially sound enterprises.”

 Good corporate governance helps to ensure Good corporate governance helps… to

ensure that corporations take into account the interests that corporations take into
account the interests of a wide range of constituencies, as well as of a wide range of
constituencies, as well as of the communities within which they operate, and the
communities within which they operate, and that their boards are accountable to the
company that their boards are accountable to the company and the shareholders. This,
in turn, helps the shareholders. This, in turn, helps to assure that corporations operate
for the benefit that corporations operate for the benefit of society as a whole. of society
as a whole

Their role:
(employees)
o Participate in corporate governance to enhance the effectiveness of the corporations 
 Allow employee participation
examples: 
1. Rights to consultation – employees are consulted on certain management
decisions (increases transparency and improves decisions regarding the
management and market – can offer additional knowledge)
2. Duties of BOD to consider stakeholders interests –reinforces accountability by
protecting stakeholder 
3. Right to nominate for supervisory board members – creates a check and
balance system between management and supervisory board (creates
perception of greater fairness)
4. compensation/privatization programs that make employees shareholders –
employers’ employees to elect the supervisory board (holds management
responsible)
o Be deeply interested in the long-term well-being of the company
o Follow the principles in corporate governance: 
1. Transparency – full disclosure of financial and non-financial information (also
makes employees prone to make better decisions)
2. Accountability – ensure that management is effectively overseen (or replaced if
necessary) by appointing an independent and competent governing body 
3. Fairness – equitable treatment of investors 
4. Responsibility – ensuring the corporation fulfills its proper role in society 
  Corporate governance systems vary in how they achieve these goals, but by focusing
on one group --in this case employees-- we can further develop the notion of how a
stakeholder group can strengthen the corporate governance system.

o Speak freely about management decisions, malpractices and not be compromised for it 
(shareholders) 
o Apart from other rights, given the right to make comments and suggestions which should
be carefully considered by BOD
(customers)
o Use the given information about products and services, state problems and complaints
to ensure their satisfaction
(Business partners)
o Should strictly uphold promises and commitments, and guarantees especially about
product quality and on time delivery
(competitors)
o Remaining fair and following rules and regulations of the code of conduct 
(creditors)
o Companies should organize projects to keep good relations with creditors
o Make sure that terms of loans and obligations are complied with 
(society)
o Participate in activities that promote quality of life and happiness within communities
(environment)
o Companies should promote awareness regarding environmental conservation 
o Decrease waste produced
o Utilize eco-friendly technology and products

Two main stakeholder’s approach:

 The least-inclusive approach seeks strategies that, while considering the limitations
posed by stakeholders, still lead to orienting management toward the maximization of
the benefits of shareholders.
 The most-inclusive approach is often formulated in terms of a new enlightening
corporate philosophy or ethos in which integrating the stakes of all stakeholders is seen
as both a moral duty and a requirement for the success of the corporation. 
Thus, successful strategies are those that integrate the interest of all stakeholders, rather than
maximize the position of one group within limitations provided by the others.

Why should they take part in corporate governance?

o Helps create competitive, modern, and healthy companies
o Helps against corruption 
o Helps attract investments
o Helps foster healthy competition 
o Helps prevent banking crises

Stakeholders and Public policy

 The notion of stakeholder processes is considered a crucial element not only of
corporate governance but also of policy making in the broadest sense. 
  It has even been proposed as a platform for widespread economic and political reform to
restore the state’s legitimacy through major participation in the decisions of public
institutions. Authority within a public system conventionally comes from the state.
 Stake holding in policy making provides a framework for dealing with the crisis of
legitimacy that the modern state has experienced because of globalization, the
complexities derived from the so-called knowledge economy, and the challenges of
global environmental change.
 From a theoretical perspective, stake holding can be criticized for imposing a too-
simplified view of society in which people and groups are only concerned about
defending their own interests. 
 From an ethical perspective, stake holding for societal governance is mostly justified for
its contribution to participation and democracy.
https://www.oecd.org/daf/ca/corporategovernanceprinciples/1930657.pdf
https://scc.listedcompany.com/misc/cg/2010/The%20Role%20of%20Stakeholders%20in
%20Corporate%20Governance.pdf 
https://www.britannica.com/topic/stakeholder/Stakeholders-and-public-policy 
https://old.ecseonline.com/PDF/Role_of_Stakeholders_in_CorpGov.pdf