Corporate Finance
Essentially, most businesses view shareholders, i.e. The owners of a business as being the most important stakeholder group. It therefore follows that as per this view, a business entity has an obligation to put the needs of stockholder/owners first. It should, however, be noted that there are numerous other groups that also have an interest in the enterprise, and who are affected by the firm's actions. Key stakeholder groups according to Sims (2003, p. 74) include, but they are not limited to, "shareholders and investors, employees, customers, and suppliers…the government and communities…"
The table below ranks various stakeholders on the basis of: i) expected risk and return, and ii) importance to the organization's success.
Table
Stakeholder Ranking on the Basis of Importance to the Organization's Success
Stakeholder Ranking on the Basis of Expected Risk and Return
Shareholders/investors
Shareholders/investors
Government
Suppliers
3. Customers
3. Employees
4. Employees
4. Customers
5. Suppliers
5. Community
6. Community
6. Government
Shareholders top the list in both instances. It is important to note that without the contribution of shareholders, a business cannot be launched in the first place....
They are the lifeline of an organization as in addition to providing funds for startup operations, they could also be called upon to provide more funds so that the business can exploit other opportunities. On the other hand, shareholders are the most exposed to risk, i.e. incase the business starts making losses or is declared bankrupt. However, shareholders are also the ones who reap from the said risk exposure the most should the business succeed. On the basis of importance to the organization's success, the government, customers, employees, suppliers, and the community (in that order) all come after shareholders. To start its operations, the business must be approved and licensed by the relevant government agencies, after satisfying various requirements and standards. This is the reason as to why the government is listed second, after shareholders. Without customers, employees cannot be engaged by the business, in the first place. Without customers and employees, suppliers would find nowhere to sell their goods and services. After all is said and done, the business needs the general goodwill and support of the community. With regard to expected risk and return, suppliers, employees, and customers (in that order) are most exposed to risk should the business go under or be declared bankrupt. They also reap the most if the business succeeds.
Part 2
There are several key variables that could have a significant impact…
