Outline of dissertation

Essay add: 22-10-2015, 16:44   /   Views: 341

Would Corporate Governance be strengthened by incorporating stakeholder concerns? Corporate governance is fast becoming an important discipline and has come into prominence in the last fifteen years or so. However, the theories underlying corporate governance and the area it encompasses dates back to much earlier period and are drawn from a variety of disciplines including finance, economics accounting, law, management and organizational behaviour. It has to be remembered that the development of corporate governance is a global occurrence and different countries administer different theories depending on what stage an individual country or group of countries is at.

As Mallin points out, “an aspect of particular importance is whether the company itself operates within a shareholder framework, focussing primarily on the maintenance or enhancement of shareholder value as its main objective or whether it takes a broader stakeholder approach, emphasizing the interests of diverse groups such as employees, providers of credit, suppliers and the local community.” The selection of appropriate model for corporate governance has been a touchy area since the famous debates between Adolf Berle and Edwin Merrick Dodd JR in the early 1930s. The distinctive approaches of Berle and Dodd have basically polarised the corporate governance structure into two groups—one that advocate stakeholder model and those that advocate shareholder primacy. The sole objective of this dissertation would be to assess to what degree is the stakeholder theory well-suited in attaining the end objectives of the business.

In doing so, we will briefly set out scholarly debates between propounders of both the model. In this context it is pertinent to mention here that the modern theory of firm views the corporation as a nexus of contracts between various corporate constituencies. Based on this the finance theory and corporate law postulates shareholder wealth as the main objective of the firm. However it has long been recognised by both scholars and industry leaders that the shareholder theory is not as simple as it may look.

Dodd JR cited Mr Owen D Young and the way he perceived his role: ‘I think what is right in business is influenced very largely by the growing sense of trusteeship…..one no longer feels the obligation to take from the labour for the benefit of capital, nor to take from the public for the benefit of both, but rather to administer wisely and fairly for the benefit of all.' Although the academic model has always favoured the stakeholder theory, yet for some reason the shareholder theory remains one of major significance for judiciary in UK. It is as Sir Samuel Britton stated a fact that ‘if directors are accountable to everybody for everything, they will end up being accountable to nobody for anything'. In today's world companies operate in a much wider spectrum and therefore it should take into account the views of various stakeholders in addition to those of shareholders.

According to Mallin, “While the basic objective would be to enhance corporate value, the impact of the company's activities on its other stakeholders must be taken into account when deciding the strategy to be developed for achieving the corporate objective.” By considering the interests of the stakeholders the company should not only be able to attain its objectives with integrity but also help to achieve sustainability of its long term operations.

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