To what extent does a company exist only for the benefit of shareholders? IntroductionThe recent developments in corporate governance regulations have facilitated the increase of pressure on the need of organisations to act responsibly. Most organisations now act with their shareholder’s interest in mind. Most public traded companies exist only for the benefit of their shareholders by maximising shareholder wealth and providing more benefits rather than acting in a self-opportunistic manner. Austin (2001) shows that to improve shareholder’s value, companies have introduces strategies such as through merger and acquisitions. The focus of this study is to show to what extent companies exist for the benefit of their shareholders.
Shareholders own parts of the company and invest money for future dividends or to increases the value of their shares. This is mostly experienced in large organizations while in small businesses; shareholders are the individuals who establish the business. Bahli and Rivard (2003, p. 211) describes that shareholders are entitled to various decisions for example in voting for a corporate president and the board of directors. They are also responsible in making significant changes in business such as change of company name or introducing mergers and acquisition.
Shareholders therefore have a great influence in the operation of a business for example those institutional investors such as insurance companies, banks and investment companies. Most companies therefore exist for the benefit of shareholders due to shareholders’ influence caused and also to avoid principal- agent conflicts. According to Bamberg and Klaus (1997) when shareholders buy shares from a company, they always expect the company to be successful in order for it to offer more dividends and to increases share prices.
Some companies offer bonus benefits to their companies. These benefits improve the relationship between the company and its shareholders therefore adding value to the company. These benefits also allow the shareholders to experience company’s goods and services and also facilitate attendance at meetings for example by offering discount voucher to individuals who attend the meetings. Some of the benefits offered include discounts in travel and leisure for example the British Airways offers about 10 percent discount to its shareholders. The Eurotunnel ores 30 percent discount for three return journeys though one has to be a regular traveler (Mitchell et al.
1997, p. 853). Most managers and especially in the public traded companies acknowledge creating value for their shareholders and this is their corporate objective. Shareholders are therefore considered as important components in the management’s assessment of key decisions. (Fama and Michael 1993, p. 327-349) shows how the CEO of the Indian Head Mills states that the objective of their company is to increase the intrinsic value of the common stock but not to grow bigger, nor to be diversified nor to provide jobs.
They are also not in business to lead in new product development or to achieve any status. He says that any of the above aspect may come time to time as a means to the main objective of the company which is to improve the inherent value of their stockholders.