Shareholders and Companies Relations – Free Essay Examples

Shareholders and Companies Relations

Introduction

In the today’s business world, ethics is the key element for the pride and position of any organization and none of the organization would ever like to be known as unethical organization. The successful businesses and organizations are considered to be the ones who struggle hard and give priority to establish an environment that is socially developed. The businesses spend a lot of time and efforts in establishing the rules and policies that can produce sound social environment for the people that are related to the organization. The people outside the world, who are related to business, do expect a lot in terms of ethics and if they do not find such behavior then the position of the corporate is disturbed to the large extent.

This dissertation is focused over making the share holders to realize the fact that a part from the profit and sales there are many things that are needed by the successful business. Being socially active by showing the positive ethical behavior is one of them. A thought has been developed in the mind of many people that ethical behavior is always required over the managerial level. This is no doubt a wrong thought as ethics and sound behavior is equally important for every person related to the organization. In spite of having so much importance still this important element is missed at many places and also being ignored. There are many unethical issues that do take place in the large corporate as well like discrimination, gender biases and child labor and so on. For being a successful business, it is the responsibility of every business to maintain and develop the ethical as well as social environment within the organization. (Sunderland, 1, 2007)

This essay is based on the environment of any business or organization. The main element of discussion in this essay is the importance of social behavior and ethics in the organizations and businesses today. In this essay it has to be observed that what are the ethical issues that are related to any organization? The meaning and purpose of Corporate Social Responsibility has also been discussed in depth in this essay later on. This essay actually provides the in depth view and describes that social and ethical behavior is very much essential for the life and position of any organization. Still the ethical and social behavior is not adapted in many of the organization. The literature review of this essay gives a quite clear view of the matter and all the questions become clear.

This essay holds great importance as in today’s world the businesses are interacting with each other internationally. So, every person that is related to a business is having a business society. Being ethical and social in the business society is no doubt necessary for the growth and success of the business. For achieving the goals of the business, now the businesses have to be socially active. It is a fact that the development of the society or community leads to the productivity. The reason may be that good relations that the business is having surely bring sound position for the organization which can definitely enhance the growth and success of the organization. (Text book- social environment, 1, 2009)

What are Shareholders?

A shareholder can be defined as any single person in a company or any business that is having a share in the business. Another name for shareholder is stockholder. The shareholders are actually the owners of the company as they have made investments in the company and do get profit out of the company if the performance of the company is well. The shareholders also do face huge losses if the performance of the company is poor. (Shareholders, 1, n.d)

Value of Shareholders

The shareholders hold a great value in the businesses because they are responsible for managing the things in such a way so that the earnings and profits of the business are increased. The total of all the strategic decisions made in the businesses that can have impacts over the ability of a firm so that the amount of flow of free cash flow in the firm is effectively and efficiently increased with time, can be the other description of the value of shareholders. Shareholders are vital for any company or firm as they are responsible for taking the decisions and then making investments. They have to take such decisions that can provide a healthy return. The shareholders before making their investments in a firm carefully examine the whole structure of the company. Apart from investment share holders also help the businesses by contributing their skills, abilities and knowledge for the business. The investments from the share holders would result in more profits for a company and also provides a company an edge over the others when it has skilled, well knowledge and experienced share holders which would take active interest in the company’s operations and helping the managers in different circumstances. Due to this the companies can develop themselves domestically as well as globally. Thus there are different benefits of share holders which can be a great value for an organization.

Background Research of Social Responsibilities of a Business

The concept of social responsibilities in business was not that much common and it started emerging in the 20th century. This idea first began from the United States. The businesses at that time period were not social and also not very competitive due to which the corporate started facing many social issues. In order to cop up with these protests and issues the corporate were advised by the managers and executives that the businesses must now use their powers not only for improving the growth and sales of the company but also for improving the social relations. Different attempts have been made by the businesses in the past for improving the social relations like charities, funds, provision of recreational programs and trainings for the employees. The executives that made their businesses to get social realized the fact that business is not only the name of earning profit rather the businesses also do have some responsibilities towards the society. The fact was realized in past by many businesses that working in parallel with society can help a lot in earning the profits. At that time, 2 famous principles were introduced for improving the social relationships of businesses. These principles played a great role in making the businesses to concentrate over the social responsibilities. These two principles are given as under:

The Charity Principle

This principle states that the businesses that are wealthier and have much assets and funds should provide the help by giving charities, funds and other monetary help to the institutions that are not that strong in terms of finance. This type of help definitely creates god relationship between the businesses and the society. This act has always been observed in the past that royal or rich people used to provide aids to the poor people.

The Stewardship Principle

This principle states that the executives of the businesses should present themselves as the stewards. The business executives should try and help the public and should try to work for their interest. The business executives always try to perform those actions in the company or organization that can provide profit to everyone. Such businesses try to earn the trust of the public and try to produce the ways that can improve the ways and life of the people.

The above two principles provided the bases for making the attempts in order to improve the relationships with the society. (Business and the social environment, 48, 2004)

Corporate Social Responsibility

When people are being affected by any corporation because of its actions, and also the people’s communities and environments are affected due to these actions, such actions are accounted as Corporate Social Responsibility. Companies should acknowledge these actions and should rectify them if possible, so people are not affected due to their actions. They have a social responsibility to keep the environment hazard free and that because of their deeds or actions people do not have to undergo hazardous life. A company even should sacrifice their profits if their actions affect the shareholders or they should use profits in such way that it brings upon a positive social impact. (Kotler, 3, 2005)

Social Responsibilities of Business

A company when socially acknowledging its facts about their actions which account to create problems for people and their environment should not abandon their prime reason for gaining profit. They should keep striving hard for their objectives. The companies have main responsibilities; socially, economically and legally. The company has to plan its strategy in such a way that all these responsibilities are blended together without ignoring its main obligations. The management of a firm has to put together such responsibilities so that when they work together the firm can get the best possible outcome. There may be times when these responsibilities would not work and due to that the company can experience different hurdles. The companies having responsibilities as such does not mean that they will not be profitable. Some companies are profitable and some companies are not that much profitable, due to such social responsibilities.

Companies having social responsibilities require them to balance the profits to be gained by the cost of gaining those profits. Many people are of the point of view that when companies having social responsibilities strive hard to fulfill their social obligations, both the people and companies gain a lot and the environment can be kept free of hazards. But, there are also people which believe that when companies fulfill their social obligations, this weakens the strength of a business. Thus in the society there are different people having different views. The social responsibilities of business also include the management of ethics throughout the organization because the ethical conditions of the organization do create string image of the organization. So, highly improved ethical standards should be tried to develop within the business in order to achieve success. The business is an activity that cannot be performed by being isolated so it is necessary that the shareholders should develop the relationships within their business society. Being social is perhaps the basic need of the business and all the shareholders should concentrate over it. The shareholders should be involved throughout the business community and should engage themselves in performing the tasks that can enhance their level of productivity and performance. (Preston, 1, 2001)

Social Responsibilities and Corporate Power

The importance of social responsibilities for the shareholders emerges out from the two main features of any business.

  1. The necessary operations that are performed by the businesses for the shareholders.
  2. The strong impact of businesses over the lives of shareholders.

If we consider the businesses in depth then it can be said there are many functions that are performed by the corporate for the betterment of people or shareholders. These operations include the job creation, communication, facilities, and transportation, improving the life style, national services, entertainment, insurance, health care and many other financial services. All these operations do show that if the corporate is interested in making strong social relationship then there is a lot the corporate can do for the betterment of people. As a result these functions might lead towards the growth of profit and economy, the trade is also improved and innovations and developments are also made.

Apart from providing many different facilities to the shareholders the importance of social responsibility also emerged because of the fact that it can improve the way of living of a person. If the corporate becomes socially active and responsible then the entire globe can be facilitated. The law of iron law of responsibility is concerned with this fact that if the businesses will not use powers in fulfilling the responsibilities of the society then sooner these powers will be lost. The world is becoming a global village in this age and the need of corporate facilities and operations is being felt necessary for the society so the expectations form the corporate are increasing day by day. In order to fulfill those expectations the shareholders must try to improve their ethical situations and social behavior. (Mcnamara, 1, 2008)

Benefits of Corporate Social Responsibility

There are many benefits that are provided by improving the social behavior of the shareholders in the businesses. Majority of the shareholders now believe in improving the social responsibilities as they consider that there are many significant advantages that can be earned by improving the social behaviors. According to estimation the necessity of social behavior will be increased in few years. Many benefits are earned if the shareholders try to achieve the sound relationships and few of these benefits are listed as under:

  • The working environment is improved.
  • The employees are guaranteed with safety and health care.
  • The issue of job discrimination is eliminated due to the sound relationships between the employees.
  • The consumers are provided with protection.
  • The power of the corporate is balanced with the responsibilities. Because the businesses that do have the duty of developing the social relationships never think about missing the powers.
  • If the shareholders follow the policies for improving the relationships with society then Government also makes sure that the businesses are falling in line with the policies that protect the community from the offensive business practices.
  • The sound social relationships also make it possible to provide long term profits in the businesses.
  • If the social behavior and relationship of any business is then obviously the social position of that business will also be strong and the business will be able to establish the relation of trust with all the members of the business society. This act will definitely increase the pride and position of the business.
  • If the businesses are having socially strong relationships then surely they will feel their responsibility of taking care of the general public. So, if the business is harming the people in some sense then it will also find out the remedy for it.
  • The power of the business is also balanced if the social responsibility is met.
  • The governmental laws and regulations are also discouraged if the social responsibility is realized by the shareholders.
  • The social responsibilities can also help in expanding long term business profits.
  • The value, pride and position of the business is also improved.
  • There are many problems that can be caused by the businesses so being socially responsible can overcome these problems as well.

By observing all these benefits that are provided if the shareholders understand the importance of getting socially responsible it can be said that businesses can enhance to the large extent if the social responsibilities are fulfilled. Hence it can be said that there are strong reasons as a result of which we can say that the social responsibilities can improve the businesses. (The business benefits of corporate social responsibility, 1, n.d)

Two Views of Corporate Social Responsibility

Shareholder Wealth

There is only one corporate social responsibility in market based economy where the private assets have got their rights. This only social responsibility is to establish the value of the shareholder. The value is not the only element that is required it is also necessary to be legal and integral. There are many social issues that can faced by the shareholders like abuse, education, manner, behavior and so on. The shareholders are supposed to have clear image in all these areas.

Multiple Stake holders

There are some companies which treat their shareholders as part of their business and respect them. They are of the point of view that whether a shareholder invests in his business or not they should respect them and show dignity to them regardless why they are investing in other businesses. These shareholders may be investing in different companies but still the companies treat them equally as compared to other shareholders which are investing in their businesses. They have one common interest which is to establish their nation and strengthen it and competition within the market should take place which would enable every competitor to work harder in order to achieve his tasks. (Business and the social responsibility, 58, 2004)

Why Shareholders are not Socially Responsible?

There are a number of arguments against companies which perform social responsibilities. Some people in the society are of the point of view that when companies as such perform such functions society can be deprived from goods and services which the company is capable of and due to social obligations the efficiency of the company will decrease considerably. Some people have arguments that the companies should only be working to make profits, and the social matters should be left with other groups. Some people also criticize that the companies which are involved in social responsibilities only try to make as much profit as they can, by intentionally hiding their true intentions. Different other arguments against corporate social responsibilities are mentioned below:

Lowers Economic Efficiency and Profits

The people have arguments that when a company is using its resources for the achievement of some social obligation, efficiency of that company is being risked. For example when a company suffering some loss decides to keep the firm in a running position to avoid social effects it will have a rather huge impact on the financial terms of the company. Thus the company’s costs will increase lowering their profits. The company’s prime task is to provide goods and services in such a way that they can be competitive in market and there profits increase, which will keep them in the market for a longer period of time.

Imposes Unequal Costs among Competitors

There are some businesses which are more responsible companies they impose unfair costs due to social responsibilities. For example a firm decides to install more security measures as mentioned by the law to protect its employees, such companies have larger per head cost than those companies which do not impose such securities. Thus the companies which install more security equipments have less profit than compared to other companies with normal security equipments installed for the safety of their employees.

Apart from having many benefits from being socially responsible still shareholders is not socially that much active as they should be due to the above reasons.

Imposition of Hidden Costs passed on to Stakeholders

It is the concept of many people that the social benefits that are obtained by any company are for free. But it is not the case and in some sense the businesses have to pay for the social proposals by their own. For example, if any business or company wants to provide a clean and pollution free atmosphere to the population around it then it definitely needs installments of some expensive equipments. In this way the businesses have to pay for being socially responsible. Sometimes the costs get so high that the businesses feel that the social responsibilities have proved to be very costly.

Business may Lack the Required Social Skills

All the shareholders involved in a business are not always trained for solving the social problems and issues. These shareholders are very much efficient in their routine business processes but when it comes to social issues then they do not know anything. Because of this reason very few companies do good in social responsibilities. This again needs to have some trainings and workshops arranged for the shareholders so that they can learn how to make good relations with society.

Responsibilities are Placed over Businesses rather than Individuals

The responsibility of any action that has been taken by shareholders is over the entire business not only over that individual. Being socially responsible is the responsibility of the individual but if something goes wrong then the entire business has to face the consequences. This can also be termed as one of the argument that makes the shareholders to avoid being socially responsible.

Hence above are the few arguments due to which still many businesses avoid being socially active and responsible. (Business and the Social Environment, 1, n.d)

How Shareholders can be Socially Beneficial for a Business?

The first step for the share holders to invest in a business is to gather information about the business by researching over it from different resources. There may be some risks associated with it so before investing his money in a business he needs to get in dept knowledge about the business. By researching over a business they get more and more information about the business. When a Share holder invests some amount of money in a business, he would always want that the invested amount increases and the business that he has started proves to be beneficial for him as well as the people associated with it.

Thus, he not only invests the money in a business, also invests his time, skills, experience and knowledge. By adding all this in a business, it can accomplish tasks in a more authorized form. The Share holders can ample amount of knowledge because before investing in a business they collect and gather all the information about the business. Hence they have all the information as to what is to be done and what different situation requires from the managers of a business as well from the share holders. They can give important advices and attend meetings in which they can put forward their point of view for different circumstances which a business has to overcome. If a business requires assistance share holders with the skills they possess can assist them in the best possible way. Apart from this share holders can motivate the managers in times of difficulty and give them their views and ideas through which they can always benefit. Business and the social responsibility, 60, 2004)

Why Companies ignore Shareholders?

When shareholders invest in a business there main purpose is to earn profit. Basically there are some businesses which are started by a group of persons which may be interrelated with each other, such companies have their own point of view for the shareholders and tend to neglect share holders. These companies may be already established ignore investments from shareholders and rather wants to invest money by themselves so that the business that they have started can yield benefits for them selves. They are of the point of view that as they have started the business they should be the ones which are to benefit from it. They combine their skills, knowledge, and experiences to accomplish their tasks. They neglect the shareholders because there investment will not only divide their profits but also would bring in new agendas and issues. Also the investment from the shareholders may increase day by day which would enable them to strengthen their grip on the business which can be harmful for the business initiators.

Thus the companies are conservative in their approach and would not want shareholders which can overtake their businesses. Also every individual have an own mind set and wants to work on his ideas rather than accepting others. So when there are too many shareholders conflicts can arise in an organization which will not only demoralize the managers of the company but will also decrease the profitability of a company. For example there may be some shareholders that are of the opinion to make some changes in the organization and other does not want this change to take place, in such a conflict it is very hard to find a just path, because there may be too many shareholders in a company, by following which they can achieve the tasks of the business. On the other hand when company does not have shareholders there may still be some conflicts in the organization but the solution for the problem can be found in a less time. Different companies have different rules and regulations which are to be followed in order to achieve the tasks, when such companies include share holders in a company they may have to change some rules and regulations which will affect the whole of organization. Thus many companies tend to ignore share holders due to which they lack skills, experience and knowledge of such individuals which can be beneficial for a company and it can achieve much more objectives. Share holders investments would yield the company higher profits because of which the company can also develop more throughout a country or even in the world. (Caplan, 1, 2004)

Conclusion

After deep analysis of the literature part we come to this conclusion that the companies have to be social in such an environment to succeed. Shareholders also have to be socially responsible in order to gain profits. Also the corporate social responsibility is to find a solution for the problem for which the people are having problems due to actions of companies. The shareholders are responsible for strictly following the policies that are related to the ethical conditions of the business. If any of the people is having some problems due to the activities of the business then shareholders are also responsible for finding out the solution. Apart from having many advantages still shareholders are not socially responsible because there are different arguments against them. If the literature review of this dissertation is thoroughly analyzed and observed then the answers to our research findings is quite obvious that in this time when the world is becoming a global village the businesses are also going to be social.

Time by time it is becoming necessary for the shareholders to get socially responsible. The research also gives the detailed overview of the Corporate Social Responsibility (CSR) which states that the business should feel them responsible for any action or step that can harm the people associated to the business or its environment. In case of any harm the businesses should also then provide solutions for the problems that are caused. For the success of any business they should fulfill social obligation. There are different responsibilities of shareholders; social, economic and legal. The literature review also shows that there are many issues that are related to the environment of the business. These key issues do include ethical issues, discrimination, fraud, theft and other such issues. As a result of which the organization needs social improvements. The environment of the organization can be greatly improved if the shareholders are actively involved in performing the social responsibilities these responsibilities greatly enhance the life style of the people related to the business. It also improves the ethical conditions by establishing policies regarding social sector.

After having so much importance still it can be noticed that this aspect of the organization has always been ignored by the shareholders. The reasons are also presented in this paper. The reason due to which the issue of being socially responsible has always been ignored includes the low down of efficiency as well as the profit earning of the company. Some of the companies consider it an unnecessary step to be taken because they consider that their primary task is to earn the profits and increase the sales of the business not to improve the social contacts. Such companies never realize the fact that the improved social contacts can help a lot in achieving the better place in the competitive world. Some of the shareholders also do consider that due to the social responsibilities the unequal costs are also imposed. Hence due to some of the reasons the shareholders sometimes avoid to be socially active. At present CSR is getting very much important as the expectations of being socially responsible is increasing. Although the major aim of any corporation is to have increase in the profit but on the other hand it is also important to add value to the business. It can also be concluded that economic position can also get better if the strategy of CSR is used in the organizations.

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UniPapers. (2021) 'Shareholders and Companies Relations'. 17 November.