Shareholder and Stakeholder Values it Term Paper

  • Length: 30 pages
  • Subject: Business
  • Type: Term Paper
  • Paper: #31668522

Excerpt from Term Paper :

In other respects, however, the evidence does not readily conform to theoretical predictions. For example, if gross job turnover is taken as a rough proxy for labor market flexibility -- and since stringent EPL reduces both hiring and firing -- it is quite surprising to find that job turnover rates are very loosely related to EPL rankings. Most remarkably, not only are the estimates for Italy and France, at 21 and 24 per cent respectively, very high in absolute terms (one in every five jobs is either created or destroyed each year), but they are also extremely close to the estimates for the United States and Canada despite the much heavier regulation of dismissals in the European labor markets." (Bertola, Boeri, & Cazes, 2000)

Once the company settled into the Canadian market they faced the new challenges regarding labor. The Canadian business philosophy continued to be pro-union. In Canada, Wal-Mart faced more local labor dispute resolutions as unions began to heavily recruit Wal-Mart employees. Canadian statutes and social situations came under fire. Wal-Mart and the opposing labor factions demonstrated that financial and social expectations were not one and the same. The obvious problems held legal intrigue, acts of inclusive data destruction, outright lies and even the suppression of vital legal evidence. Both sides spent millions on representation and lobbying efforts and affected Canadian jurisprudence.

Thus, an evaluation of Wal-Mart's move north shows a series of problems and external turbulence as the company attempted to balance shareholder and stakeholder needs. Since the early 1970's, Wal-Mart consistently attempted to balance social standing with profitability. (Yahoo Finance, 2005)

To demonstrate Wal-Mart's managerial philosophy of giving back to meet the obligations of the environmental and social demands, the organization has been credited with adding approximately ten billion Canadian dollars directly or indirectly back into the Canadian economy in 2003 alone.

But even those hefty sums are not socially acceptable during this time of globalization and technological advancement. Wal-Mart as a corporation and retailer continues to expand by realizing consistent profits while they are outwardly criticized for not offering their employees sufficient wages or working conditions during these expansionary and profitable periods. Wal-Mart has also been heavily condemned for their consistently poor treatment of female employees, turnover policies and other Human Resource issues like low value job creation policies and poor healthcare options; "... other aspects are more difficult to measure precisely, such as the willingness of labor courts to entertain law suits filed by fired workers or judicial interpretation of the notion of 'just cause" for termination." (Bertola, Boeri, & Cazes, 2000)

Of course Wal-Mart presents themselves in a true shareholder fashion because they feel as though they have sufficiently met the shareholder and stakeholder value balance point. "Wal-Mart Canada employs more than 65,000 Canadians and has been ranked Canada's best retail employer twice during the past three years by international human-resources firm Hewitt Associates and Report on Business Magazine. The company is committed to community involvement and has contributed more than $35 million to Canadian charities. Wal-Mart Canada was established in 1994, is headquartered in Mississauga, Ontario, and operates 234 Wal-Mart discount stores and six SAM'S CLUBS in Canada." (Wal-Mart Canada, 2004)

This overly shareholder strong and overly optimistic view throughout Wal-Mart Canada has the labor force consistently moving towards unionization. "It has been several weeks since the Jonquiere store was automatically certified with the United Food and Commercial Workers union (UFCW), but no communication from the union has been received with regard to beginning talks with the company. The Jonquiere store is not meeting its business plan, and the company is concerned about the economic viability of the store. Wal-Mart Canada believes the unresolved labor situation at the Jonquiere store is proving detrimental to improving the performance of the store. (Wal-Mart Canada, 2004)

Shareholder Value Approach

There are strict guidelines that outline the shareholder value approach. Corporations are required to conduct business with an understanding that the organization is influenced by the stock market and is subject to competition and profitability needs. A corporation should provide a principal to the overall common good while meeting these market and profitability objectives. An organization's management should be capable of meeting the day-to-day, short-term and long-term requirements in the highly competitive global market place.

In a true shareholder value system, corporations have abandoned the need to meet and exceed each and every stakeholder demand. In fact, when the situation requires a decision between the common good and legal and safe profitability, the corporation should do what is in its best financial interest because corporations should not be confused with charitable or social entities. "Ownership of corporate shares does not constitute the right to extract the maximum financial gain from the interdependent web of human action which constitutes the modern public corporation. The owner of corporate shares cannot expect management to instrumentalized persons for the benefit of his or her wealth maximization." (Pierucci, Naughton, & Clark, 2005)

Profit is critical in the shareholder value system because it represents the life blood of the company. All aspects of the organization and especially shareholders are dependent on it. "If the corporation was truly dedicated to the fullest possible growth and development of its employees, productivity and profitability might just reach levels undreamed of heretofore." (Pierucci, Naughton, & Clark, 2005)

If John Adams was right, the idea of development should be one and the same with corporate responsibility and best business practices. "Sustainable development recognizes the need to balance economic, social, and environmental goals, or "triple bottom line" performance, for short- and long-term value creation." (Windsor, 1999) We know that companies have been forced to go to great lengths to integrate principles associated with stakeholder needs into their corporate strategies in order to balance value and profit. But, as Warren Buffet, CEO of the Berkshire Hathaway Group once said, it can take an organization twenty years to build a reputation but only five minutes to ruin it. Trust is derived from reputation.

Shareholder Trust

If investor trust is the foundation of the shareholder value approach, the twenty first-century has been the antisepsis of trust. "Legislative reform undertaken to arrest corporate malfeasance reflects the need to stem the loss of investor confidence and revitalize the reputation of American business. Fiduciary breaches between company directors and executives and their employees and shareholders, as well as the conflict of interest for investment analysts and auditors, are only aspects of the problem." (Kinetix, 2004)

The American legal system has been steadily introducing new legislation, statues and regulatory measures to address the inherent problems associated with a lack of investor trust in corporate America. As the CEO's of companies like Tyco and Sprint are indicted and tried and the whole of America is still reeling from the Enron and Arthur Anderson debacle, we can see the type of pressure the Shareholder Value Approach creates. There is a need for all business to maintain and sustain very high levels of profitability at any cost by existing standards.

The many steep declines in some of the stock prices of organizations that have been found guilty of questionable practices in ethics and accountability have created a legislative need for creating and protecting shareholder value. "Public companies are now among the most accountable organizations in society.... But the emphasis on accountability has tended to obscure a board's first responsibility -- to enhance the prosperity of the business over time.... Good governance ensures that constituencies [stakeholders] with a relevant interest in the company's business are fully taken into account" (Windsor, 1999)

Define Shareholder Value Added

Investors have changed gears and may now require even more than the basic shareholder value added philosophy. Investors now seemingly look beyond financial measures to more social and environmental accomplishments to truly determine a company's market value. "The findings of several independent studies have confirmed that superior environmental and social performance correlate closely with superior strategic corporate management, and therefore with superior financial performance and shareholder value creation." (Kinetix, 2004)

It is in the business's best interest to consider more than the basics of shareholder value added approaches in the twenty-first century because there will be no need for any businesses if whole societies fail or if the global ecosystems deteriorate. "The dominate American cultural view of personal freedom and self-identity form the parameters of the mainstream shareholder / stakeholder conversation." (Pierucci, Naughton, & Clark, 2005)

Today's global marketplace can be characterized by newer levels of diversity, liberalization and sources of capital. With these new rules come opportunities and risks. "To maintain profitability and growth, companies need to be attentive to issues of governance, social responsibility, and the prudent and efficient use of resources." (Kinetix, 2004) shareholder value added viewpoint is one in which the emphasis of these new opportunities, rules and risks should be driven by the organizational profitability opportunities over social and environmental responsibilities. "While these changes have produced numerous benefits, they have also been socially disruptive…

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