Shareholder-Centric Perspective - Explained
What is a Shareholder Centric Perspective?
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What is a Shareholder-Centric Perspective?
Corporations that consider the interests of shareholders as paramount while making governance decisions are said to have Shareholder-Centric Perspective. This perspective has a significant impact on the growth, direction, and strategic planning of a business.
How to Use a Shareholder-Centric Perspective
When Shareholder obligations and wealth creation take centre stage in corporate governance, Shareholder-Centric Perspective drives the decision making. Shareholder primacy in this scenario overrides other considerations like corporate social responsibility, consumer demands and employees and corporate stakeholders interests. While advocates of Shareholder-Centric Perspective demand that corporates focus on maximizing the profits for shareholders, the Stakeholder-Centric Perspective advocates for equal emphasis on other factors like quality, corporate culture, social mores, etc.
The Factors Influencing Shareholder-Centric Perspective
This perspective stems from the answer to the question, Who owns a corporate?. As investors, shareholders are partial owners of the business and their interests should supersede those of other stakeholders even as they should be accorded greater control in the operating of said business. Other stakeholders like board members, employees, and executives are there to serve the business - which in turn serves shareholder interests, ergo, everyone involved should work towards maximizing profits for shareholders. Since wealth creation is one of the most significant parameters of measuring growth, it provides the Shareholder-Centric approach a solid framework of reasons to advocate its goals.
Criticism of the Shareholder-Centric Perspective
Critics of the Shareholder-Centric Perspective argue that a corporate cannot be owned and serves a myriad of purposes. Besides being responsible for its shareholders wealth, it also has obligations towards its clients, consumers, stakeholders, community and society at large. It is a legal entity that is not bound by ties of investments alone. Within this larger context, shareholders are just a part of the sum and not the prime focus of its existence. This view has been gaining ground post the economic recession of 2008.
Disadvantages of the Shareholder-Centric Perspective
- Long term strategies are adversely affected by short term goals that look at immediate profits, jeopardizing the long term sustainability of the firm.
- Focus on profits alone diminishes the will to take risks, isn't conducive to the spirit of entrepreneurism, and trades in forward thinking, risky measures for small and short term goals, adversely impacting the firms market dominance and relevance.
- Research and development require capital that is apportioned from dividends. These are expenditures that do not provide immediate gains but are imperative for the long term survival and thriving of a business. Limiting this resource to please shareholders is bad for the business.
Although corporations are moving on from this approach to managing businesses, it will be a long time before concrete steps are taken to make corporates more conducive to stakeholder-centric governance policies.
- Corporate Governance Law (Intro)
- What is Business Governance?
- Berle-Means Thesis
- Corporate Governance Rating Definition
- Who are the members of a corporation?
- Corporate Charter
- Shareholder Register
- Common Stock
- Preferred Stock
- Par Value
- Authorized Shares
- Issued Shares of Stock
- Unissued Shares of Stock
- Outstanding Shares
- Institutional Shares
- Dual Class Shares
- What is a closely-held corporation?
- Close Corporation Plan Definition
- What is a Private Company vs a Public Company?
- What is the role and purpose of the corporation?
- What is the Agency theory of corporate governance?
- Shareholder-Centric Perspective
- Shareholder Value
What is the Stakeholder theory of corporate governance?
What is the role & rights of Shareholders in the corporation?
- Shareholder Democracy Definition
- Quorum Definition
- Class Voting Shareholders
- Changing the Voting Rules
- Supermajority (Voting)
- Shareholder Sponsored Proposal
- What are the variations on attributes of Ownership structure?
- Stock Split
- What are the fiduciary duties owed by shareholders?
- When is a shareholder personally liable for corporate obligations?
- Appraisal Rights
- Dissenter's Rights
- Say on Pay Rights
- How can shareholder enforce their rights (direct and derivative actions)?
- What is the process for bringing a Derivative action?
- What are corporate vote Proxies?
- Proxy Statement
- Proxy Fight or Contest Definition & Explanation
- What is Shareholder Activism and the significance of Institutional Investors?
- Activist Investor
- Overview of Board of Directors
- Board Decision Making
- Advisory Board (Observer Directors)
- What is the role of the Board of Directors?
- Board of Trustees
- Board of Governors
- Outside Director
- Outside Director or Non-Executive Director Definition
- Independent Outside Director
- Budget Committee
- Audit Committee
- Compensation Committee
- Nomination Committee (Corporate Board)
- What standards govern the actions of the board of directors?
- Duty of Candor Definition
- Board Evaluation Definition
- What is the Business Judgment Rule?
- What is D&O insurance?
- Codetermination (Foreign)
- What is the role of Managers of the corporation?
- What standards govern manager actions?
- Chief Executive Officer (CEO)
- Chief Financial Officer
- Chief Information Officer (CIO)
- Chief Investment Officer (CIO)
- Chief Legal Officer
- Chief Operating Officer
- Chief Risk Officer
- Chief Security Officer
- Chief Technology Officer (CTO)
- What are the primary state and federal corporate governance laws?
- What is the role of the state in corporate governance?
- What is the role of Securities Laws in corporate governance?
- What is the role of the Foreign Corrupt Practices Act in corporate governance?
- What is the Sarbanes-Oxley Act (SOX) effect on corporate governance?
- Sarbanes-Oxley Act (SOX)
- What is the Dodd-Frank Wall Street Reform and Consumer Protection Act effect on corporate governance?
- Corporate Monitors
- What industry organization standards affect corporate governance?
- How do proxy advisory firms affect corporate governance?
- What is the role of ethics in corporate governance?
- What are the major causes of corporate governance issues?
- What are the access to information issues?
- What are decision-making structure issues?
- What are the power struggle or competition issues?
- Holding Company
- What are hostile takeovers and defenses to hostile takeovers?
- Williams Act
- Staggered Board
- Delay-Tactic Defenses?
- Legal Lockup Defenses?
- White Knight and Pac Man Defenses?
- Jonestown Defense
- Lady Macbeth Strategy
- Macaroni Defense
- Yellow Knight
- Back-end Plan Definition
- Backflip Takeover Definition
- Dead Hand Provision Definition
- Kamikaze Defense
- Operating Company Property Company Model
- Scorched Earth Policy Definition
- Revlon Rule
- What are benefit-alignment issues?
- Cadbury Rules Definition