ACGD213

ETHICS AND GOVERNANCE

TOPIC 7:
SHAREHOLDERS AND
STAKEHOLDERS IN
CORPORATE GOVERNANCE
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Course outcome
At the end of this course, students should be able to:
 
CO3: Explain the main players in corporate governance
which are board of directors, board committees and
shareholders of the organization.

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INTRODUCTION

Who is a Shareholder?
• A shareholder can be a person, company, or organization that holds stock(s) in a given
company.
• A shareholder must own a minimum of one share in a company’s stock or mutual fund to
make them a partial owner.
• Shareholders typically receive declared dividends if the company does well and succeeds.
Who is a Stakeholder?
• A Stakeholders refers to a specific person or groups of people, who have an interest or a
claim in a firm and can affect and be affected by the firms decisions and actions.
• i.e creditors, employees, government, shareholders and supplier.

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TYPES OF SHAREHOLDER
• someone who has purchased at least one common share
of a company. 
• have a right to vote on corporate issues and are entitled
Common shareholders to declared common dividends. 
• paid out last in the event of bankruptcy after debtholders
and preferred shareholders.

• own a different type of share known as preferred stock.

• They have no voting rights, which means they cannot
influence management decision-making.
Preferred shareholders • guaranteed right to be paid a fixed amount of dividend
every year and to receive this payment before the
company pays a dividend to common shareholders.

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SHAREHOLDERS RIGHT

Right to
Right to vote
Right to
inspect
sue
document

Preemptive Right to
rights receive
dividend

Shareholders’
Right to Right Right to
transfer residual
ownership claim

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SHAREHOLDERS RIGHT
Right to inspect • Shareholders have the right to examine basic documents
document such as company policy and minutes of board meetings. 

• Voting power includes electing directors and proposals for

fundamental changes affecting the company such as mergers
Right to vote or liquidation.
• Voting takes place at the company’s annual general meeting. 

• Shareholders who feel their rights have been violated by

their corporations have the right to sue.
Right to sue • For example, if shareholders have not received their
entitled share of dividends they can bring legal actions
against their corporations.

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SHAREHOLDERS RIGHT

Right to receive • If a company’s Board of Directors declare a dividend to common

dividends stock shareholders, they have the right to receive those dividends.

Right to residual • If a company is forced to sell off all of their assets (liquidate)
claim because of bankruptcy, common stockholders have a right to a
portion of earnings after any debt has been sorted out.

Right to transfer • The right to transfer ownership means shareholders are allowed
ownership to trade their stock on an exchange.

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SHAREHOLDERS RIGHT

• they have the chance to issue more shares in a

Pre-emptive right “rights offering” to buy enough new shares to
maintain their percentage of ownership in the
company.

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RESPONSIBILITY OF SHAREHOLDERS

Shareholders can also be directors of the company. Whilst directors are responsible for
the day to day management of the company and making decisions, the shareholders
have specific roles and duties in relation to their control over the company.

Under the Companies Act 2016, major business decisions which would affect
shareholders’ rights must be approved by the shareholders at a general meeting called
by the directors of the company, by way of special resolution.

The main duty of shareholders is to pass resolutions at general meetings by voting in

their shareholder capacity. This duty is particularly important as it allows the
shareholders to exercise their ultimate control over the company and how it is managed.

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RESPONSIBILITY OF SHAREHOLDERS
The Company Act 2016 provides that shareholders’ approval must be obtained for certain decision.
Decision that can only be made or approved by shareholder are related to following matters
 Issuance of additional shares of the company;
 appointment or removal of company directors by way of an ordinary resolution;
 approval of directors’ remuneration (for public company);
 Appointment or removal of auditor (for public company);
 Amending and changing the company constitution (in which case a special resolution of 75% or more of
all shareholder votes would need to be obtained);
 Any arrangement or transaction exceeding RM 250,000 or 10% of the net asset value of the company
between the company and:
 a director of the company; a substantial shareholder of the company, its holding company, or its subsidiary; or
 a person connected to such director or substantial shareholder, involving the acquisition or disposal of shares or
non-cash assets from or to the company.
 Any arrangement or transaction involving the acquisition or disposal of substantial property of the
company.
 Alteration or reduction of share capital of a public company

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SHAREHOLDERS’ ACTIVISM
Shareholder activism refer to the
Shareholder activism is a way in
group of shareholders who tries to
which shareholders can influence a
change the status quo (the
corporation's behavior by
existing state of affairs) through
exercising their rights as partial
his voice without a change in the
owners.
control of the company.

Shareholders activism is needed to

establish a stronger link between
Potential shareholder activism will
governance and improved
be form when BOD has failed in its
corporate performance, and to
duty.
achieve greater shareholder
democracy.

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 ROLES OF SHAREHOLDER ACTIVISM

Ensure
Ensure one to one institutional Help investors to
Ensure identify the level of
meetings between investor form
Ensure shareholders institutional Corporate governance
company and representative
make positive use of investor in a particular country
institutional groups and
their votes (basic establish a list of or in individual firms
investor present based on corporate
voting right) underperforming
representative resolutions to Governance Rating
firms
during the year company System
management

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Shareholders’ activism in Malaysia

In view of academic works in the Malaysian

context, researchers recently have started to
recognise the importance of minority shareholder
roles, in activism and corporate governance as a
whole.

Source: https://www.theedgemarkets.com/article/taking-shareholder-activism-next-level 13
TYPES OF STAKEHOLDERS

 A firm’s stakeholders can be categorised into primary and secondary stakeholders.

Primary stakeholders
• Primary stakeholders have a direct stake or claim in a firm.
• They have a direct claim because a firm engages in a direct economic relationship.
• The economic relationship is derived from contractual connection between the firm and its
stakeholders group.

Secondary stakeholders
• Secondary stakeholders have an indirect stake or claim in a firm.
• They do not have a contractually determined direct economic relationship with the firm.
• They will not affect the ability of the firm to continue as a going concern.
• Failure to address their concerns may affect the firm’s reputation and public standing.

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TYPES OF STAKEHOLDERS AND THEIR STAKES
PRIMARY STAKEHOLDERS STAKES
Shareholders Profits – return on investment
Employees Safe and healthy working conditions and fair wages
Customers High quality products at a fair price
Suppliers Consistent market and prompt payments
Local communities Investment in the local communities
SECONDARY STAKEHOLDERS STAKES
Government Source of revenue through business taxation, ensures
compliance with law and regulations
Media Source of business news, influences public opinion
Trade bodies Adherence to trade regulations
Competitors Fair competition
Social pressure groups Protection of the environment and social welfare

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ANALYSING STAKEHOLDERS’ RELATIVE IMPORTANCE
 The firm determines the importance of their stakeholders by analysing three attributes of
each stakeholder: legitimacy, power and urgency.

• Refers to the extent of validity or appropriateness of a stakeholder’s

claim to a stake.
Legitimacy • Primary stakeholders have high degree of legitimacy due to their
contractual relationship with the firm. High legitimacy increase its
importance.

• Refers to ability to exert influence over a particular decision.

Power • Primary stakeholder have a high degree of power that they can exert
in the firm.

• Refers to the extent to which stakeholders’ demands or claims call

for an immediate attention from the firm.
Urgency • The urgency of a claim depends on its degree of sensitivity and the
importance of the relationship to a firm.

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STAKEHOLDERS PROTECTION

 Firms are not only responsible to shareholders but also accountable for the
effect of their actions on various stakeholder groups.

 Firms have an obligation to take actions that protect and enhance the well
being of their stakeholders other than promoting their own interest.

 Firms are expected to protect the welfare of their stakeholders by avoiding

negative impacts from their action. Thus, concept of corporate social
responsibility (CSR) is promoted for stakeholder protection.

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STAKEHOLDERS PROTECTION

 CSR is defined as ‘open and transparent business practices that are based on ethical values
and respect for the community, employees, the environment and shareholders to deliver
sustainable value to society at large.

BMLR2016
• In 2007, Bursa Malaysia made it compulsory for all public listed firms to disclose CSR
initiatives in the financial reports in a form of CSR statement.
• As stated in BMLR 2016, all public listed companies must include in its annual report, a
sustainability statement - a narrative statement of the listed issuer‘s management of
material economic, social risk and opportunity.
• Sustainability matters are considered material if they reflect the listed issuers’ significant
economic, environmental and social impact and substantively influence the assessment
and decision of stakeholders.

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TNB EXAMPLE: SUSTAINABILITY STATEMENT

Source: Tenaga Nasional Berhad | Integrated Annual Report ended 31 December 2019 19
TNB EXAMPLE: SUSTAINABILITY STATEMENT

Source: Tenaga Nasional Berhad | Integrated Annual Report ended 31 December 2019 20
STAKEHOLDERS PROTECTION
Stakeholder have the right to, at any point, seek additional information from
the management about any aspect of company’s business.

MCCG 2017 states that:

• Continuous communication between the company and stakeholders is

necessary to facilitate mutual understanding of each other objective and
expectation.
• It enable stakeholders to make informed decision with respect to the
business of the company, its policy on governance, the environment and
social responsibilities.

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STAKEHOLDERS PROTECTION
Communication with stakeholders can be achieved through various means
which includes:
• Establishing an investor relation function
• Conducting engagement forum
• Organising investor, analyst and media briefing and
• Use of electronic means (website, social media)

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TNB EXAMPLE: STAKEHOLDER ENGAGEMENT APPROACH

Source: Tenaga Nasional Berhad | Integrated Annual Report ended 31 December 2019 23
DIFFERENCES BETWEEN SHAREHOLDERS & STAKEHOLDERS
SHAREHOLDERS STAKEHOLDERS
Nature Shareholders are common people who Stakeholders are the interested parties
become part owners of the company by who affect or gets affected by the
buying equity stock from the company  company’s policies and objectives.

Impact Shareholders are affected directly by the
monetary performance of the company
like profits or losses as it quickly reflects
the price of the stock.
Stakeholders may be directly or indirectly
affected by what happens in the company.
The stakeholders have an impact/influence
on what is going to happen to the
performance of the company 

Expectation The shareholders want the company to
undertake activities that ensure having a
positive effect on the stock price or
increase dividend or actions that improve
the financial condition.
Stakeholders focus on the long-term
longevity of the organization, apart from
the financial performance of the
company. 

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DIFFERENCES BETWEEN SHAREHOLDERS & STAKEHOLDERS
SHAREHOLDERS STAKEHOLDERS
Focus The shareholders being the key controllers stakeholders want to incur expenditure
may want the company to focus on that increases their value but does not
improving the financial performance. necessarily add to profitability especially in
the short term

Focus Shareholders focus on the return on their stakeholders focus on the

investment in the company performance, profitability and liquidity of
the company.

Scope We can only find shareholders in the case every company or organization has its own
of public limited companies. stakeholders, whether it is a government
agency, a non-profit organization, a
partnership or a sole proprietorship.

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SUMMARY OF TOPIC 7 Types of
shareholders

Shareholders
right
Shareholders
Shareholder
responsibility

Shareholders
activism

TOPIC 7 Type of
stakeholders
Stakeholders

Attributes of
stakeholders

Differences
between Stakeholders
Shareholders & protection
stakeholder

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