EMERGING META DIMENSIONS IN THE STAKEHOLDER MANAGEMENT
–a study of recent trends


By
 Dr. Padma Srinivasan
Head-HR & Company Secretary
 Sindhu Cargo Services Ltd.
Bangalore
E-mail : padma@sindhucargo.com
 


EMERGING META DIMENSIONS IN THE STAKEHOLDER MANAGEMENT
–a study of recent trends

Stake holders are the individuals and groups with a multitude of interests, expectations, and demands as to what business should provide to society. They form an integral part of the business community and they do bring about a lot of changes into the methodologies as how to do a sound business ethically. They inculcate certain practices of practical wisdom in the business and social responsibilities of the corporate. They give a definite ethical framework for the conduct of business and also reiterate the need for constant reviewing of the value systems.

ROLE OF STAKEHOLDERS IN THE MODERN ORGANIZATION:

A stakeholder has a significant role to play in the governance of an organization, be it a company or a firm. An individual who possesses a stake in the form of number of shares held to base his control or has substantial voting power with him, on issues relating to business. The term   " stakeholder" normally connotes Employees, Consumers, Government, Business Community, Owners, NGOs, Social Activists and Other Public at large. Their interests or stakes in the organization could be philanthropic, ethical, legal or economic.

Primary stakeholders are those stakeholders that have a direct stake in the organization and its success, Secondary stakeholders are those that have a public or special interest stake in the organization and Third category of stakeholders have an interest but not necessarily a financial stake in the firm.

FOUR VALUES OF THE STAKEHOLDER:

The stakeholders may signify a descriptive value (assessing government officer for tax purpose), a normative value as consumer (evaluating the merits and quality of the firm's products), an instrumental value (NGOs insisting anti-pollution measures) and as active value (share holders changing the organizational mission, vision and business plans).
 


Fig.1 values of stakeholders.


THE ROLE OF COMPETITORS: The competitors are catalysts of growth in any organization. Though theoretically and formally the competitors are not categorized or recognized as stakeholders, they do influence the organizational style and function. They are active in inculcating the much needed spirit, motivation and temper to kill the competition in the era of hyper competition. According to the latest action research studies ' competitors cause the latent impetus to excel, again and again in the business game plan'.
 

CORPORATE GOVERNANCE: Corporate governance enables a corporate culture of consciousness, transparency and openness for a healthy business environment. The governance ensures uniform ethical outlook and healthier attitudes in business and curtails unfair and restrictive trade practices. This concept is being increasingly insisted due to the globalization and movement of economy into global highways. With globalization and liberalization of the Indian economy since 1991, the Indian government formulated different measures to protect the diverse interests of shareholders and stakeholders in the companies. Corporate governance in India is an outcome of the interest shown by the Securities and Exchange Board of India (SEBI), by insertion of a code of governance in the Listing Agreement, which was based on the recommendations of the Kumar Mangalam Birla Committee, set up by SEBI on May 7, 1999. "In emerging markets, as in advanced countries, performance, ethics, honesty, transparency, accountability, independence and quality, the key features of effective 'corporate governance' are crucial. In fact, effective corporate governance is the benchmark for 'transparency' and 'disclosures' in financial reporting", believes Rahul Chatterjee, Chartered Accountant with PricewaterHouseCoopers 1.


STAKEHOLDERS VESTED INTEREST IN CORPORATE GOVERNANCE:

Following are the few measures suggested in the corporate governance framework to enable the appropriate transparency levels

A. The rights of stakeholders that are established by law or through mutual agreements are to be respected.

B. Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain effective redress for violation of their rights.

C. Performance-enhancing mechanisms for employee participation should be permitted to develop.

D. Where stakeholders participate in the corporate governance process, they should have access to relevant, sufficient and reliable information on a timely and regular basis.

E. Stakeholders, including individual employees and their representative bodies, should be able to freely communicate their concerns about illegal or unethical practices to the board and their rights should not be compromised for doing this.

F. The corporate governance framework should be complemented by an effective, efficient insolvency framework and by effective enforcement of creditor rights.

CRUX ISSUES OF CORPORATE GOVERNANCE AS TO DISCLOSURE AND TRANSPARENCY:  The following material disclosures are necessitated for good governance of the company.

A. Disclosure should include, but not be limited to, material information on:

1. The financial and operating results of the company.
2. Company objectives.
3. Major share ownership and voting rights.
4. Remuneration policy for members of the board and key executives, and information about board members, including their qualifications, the selection process, other company directorships and whether they are regarded as independent by the board.
5. Related party transactions.
6. Foreseeable risk factors.
7. Issues regarding employees and other stakeholders.
8. Governance structures and policies, in particular, the content of any corporate governance code or policy and the process by which it is implemented.

B. Information should be prepared and disclosed in accordance with high quality standards of accounting and financial and non-financial disclosure.

C. An annual audit should be conducted by an independent, competent and qualified, auditor in order to provide an external and objective assurance to the board and shareholders that the financial statements fairly represent the financial position and performance of the company in all material respects.

D. External auditors should be accountable to the shareholders and owe a duty to the company to exercise due professional care in the conduct of the audit.

E. Channels for disseminating information should provide for equal, timely and cost-efficient access to relevant information by users.

F. The corporate governance framework should be complemented by an effective approach that addresses and promotes the provision of analysis or advice by analysts, brokers, rating agencies and others, that is relevant to decisions by investors, free from material conflicts of interest that might compromise the integrity of their analysis or advice.

THE GOLDEN PRINCIPLES OF STAKEHOLDER MANAGEMENT:

There are 7 META- GOLDEN PRINCIPLES given by Max Clarkson 2 for ensuring good corporate governance and ethics in business. They have paved the way for transparency in conduct of business ideally.  They are as follows:

    * Managers should acknowledge and actively monitor the concerns of all legitimate stakeholders, and should take their interests appropriately into account in decision-making and operations.

    * Managers should listen to and openly communicate with stakeholders about their respective concerns and contributions, and about the risks that they assume because of their involvement with the corporation.

    * Managers should adopt processes and modes of behavior that are sensitive to the concerns and capabilities of each stakeholder constituency.

    * Managers should recognize the interdependence of efforts and rewards among stakeholders, and should attempt to achieve a fair distribution of the benefits and burdens of corporate activity among them, taking into account their respective risks and vulnerabilities.

    * Managers should work cooperatively with other entities, both public and private, to insure that risks and harms arising from corporate activities are minimized and, where they cannot be avoided, appropriately compensated.

    * Managers should avoid altogether activities that might jeopardize inalienable human rights (e.g., the right to life) or give rise to risks which, if clearly understood, would be patently unacceptable to relevant stakeholders.

    * Managers should acknowledge the potential conflicts between (a) their own role as corporate stakeholders, and (b) their legal and moral responsibilities for the interests of stakeholders, and should address such conflicts through open communication, appropriate reporting and incentive systems and, where necessary, third party review.

The Clarkson Principles need to be regarded as "GUIDE", encouraging and requiring management to develop more specific stakeholder principles and then to implement for better business environment and healthy competition.

BIBLIOGRAPHY:

    1. Hindusthan times, issue dated February 11,2004 on Corporate governance in India.
    2. www.valuebasedmanagement.net

BRIEF RESUME: Dr. Padma Srinivasan is a company secretary and a visiting faculty at Bangalore. She has authored many research papers on Strategic Management and Financial Accounting areas.
 


Dr. Padma Srinivasan
 Head-HR & Company Secretary
Sindhu Cargo Services Ltd.
 Bangalore
E-mail : padma@sindhucargo.com
 

Source : E-mail October 6, 2004

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