Question

Provide me with a well detailed answer. Kindly do not copy and paste. Support with examples (real life example if possible)

Why must companies focus on the interest of other stakeholders apart from shareholder?

Answer 1

Definition of Stakeholders: A individual or Non-Individual with an interest or concern in the company are called
Stakeholders of the Company. These are the people who are affected by the actions of the business.
The stakeholders of a company are :
1. Board of directors
2. Managers
3. Employees
4. Shareholders
5. Government
6. Creditors
7. Suppliers
8. Customers
The business can not run with only shareholders, the success of a business depends on the satisfaction of the
stakeholders and if their interests are protected. Now let us understand the necessity of focusing on the interests of
other stakeholders apart from shareholders by taking the above stakeholders one-by-one.
1. Board of Directors.
Board of Directors is a decision making body of a company. It consists of those persons holding majoroty
sahres and representatives of minority share holders and independent directors appointed by the company
who are not related to the company. Board of directors are bound to act in the interest of key stakeholders
and not in the interests of only shareholders.
2. Managers and Employees
These are the important and unique resources of any company. They work in the company for their
livelihood. Their interests mainly lies in growth of salaries, career enhancement, good HR policy, bonuses,
perks and fringe benefits and recognition and identification and rewards.
If their interests are not taken care of there is a chance these valuable people may leave the organization to
join other company which takes care of them. This results in affecting the production and shut down of the
company and there by reduces the profits of the company.
3. Government:
The Company runs under the regulations of government. The company has to pay certain taxes to the
government and also it has to submit returns to the government. If any company fails to comply with the
government regulations it may face legal consequences, penalties and even shut down of the company by
government.
4. Creditors:
These persons are main source of debt financing for a company. The interset and principal payments to
creditors should be donr promptly. If company does not repay the borrowed amount then the creditors may
drag the company to court and this creates reputation loss to the company and even the company may have
to shutdown.
5. Suppliers:
These persons are suppliers of raw materials to the company. They offer credit period to good companies
which are trustworthy. If the company defaults on payments, the suppliers will not offer credit period and
some times will supply the raw materials. This increases the operating expenditure and reduces the profits.
6. Customers:
Customers are the very important stakeholders of a company and without them the company can not exist.
The interests of these stakeholders is to get quality and quantity for the amount they spent on purchase. If
the company does not pay attention to them then they will leave the company and purchase from other