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The paper is devoted to the discussion of the issue if corporations should be responsible to shareholders, stakeholders, or both. As these issues often become essential for the companies it is necessary to base their evaluation on the real environment with the application of the appropriate theories Should corporations be responsible to shareholders, stakeholders or both? A summary of the ethical dilemma In any environment, especially in public sector corporations, it is necessary to make the business reconcile with the human values, and thus corporate governance becomes the challenge for many companies, as finding the correct strategy of corporate governance often determines the financial and other indices of the company. The Board of Directors of any corporation is to implement a new capital share structure. This structure allowed involving the shareholders and stakeholders to the governance process, which also assisted in maintaining the new capital share structure. The governance structure of the corporations described, seek to align the interests of the executive employers and the shareholders.
An analysis of the ethical dilemma The main guidance of the corporate governance of the corporations lies in the belief that effective system of governance supports the confidence of the shareholders and becomes a proper basis for the correct functioning in any public sector. It does not matter, whether the enterprise belongs to the public or private sector. These laws are applicable to all spheres of business. For example, one of the most effective steps in improving corporate governance was equalizing the dividend treatment between the preferred and the common shareholders. In this process to align the interests of the stakeholders and the executives made the Board of the company establish a system of executive compensation which has been closely connected with the shareholder value creation. It is clear that such step could only lead to the improvement of the executive operation in the company, as now the staff members felt more responsibility for the actions they performed and the influence which these actions were exerting on the financial results and general results of the company's operation. (Diamond 1984) The time has passed, when politics was the main ruling force in managing the companies of the public sector; financial results of the companies now acquire new meaning and become more important in defining the role of the company.
It is no matter, whether the Board of Directors is selected or appointed, (and in our case the part of it is appointed and another part is elected by the shareholders) there can be defined no common governance principles for the corporations, though they may be made similar in application to various public sector entities. (Shleifer 1995) The last step was the adoption of a special Ethical code, which was aimed at reducing the subjectivity level in interpretation of various principles of ethics in business environment, as well as providing the guidelines in resolving the interests' conflicts in management. (Shleifer 1995) The long term, fiduciary shareholders, who represent the wider populations savings for retirement, will ultimately become the stakeholders best friend. In the short term, and particularly during corporate restructuring, there will be trade-offs. But for the time horizon of the majority, which is long term, shareholders and stakeholders have a shared interest in the companys sustainable success. Active, responsible shareholders, are fundamental to the protection of stakeholders interests, not just in the immediate, but through their role in corporate governance (Shleifer 1995) Consultation with the key shareholders in the corporations should be turned into a special strategy as among the key stakeholders of any public entity are the respected people of the region and even the whole country, thus the process of consultation with them will bear certain differences from that in the private sector. The role of the consulting strategy is to define the extent to which the key shareholders are involved into the process of the decision making and to make sure that the opinions and views which they express bear no political or administrative implication and will work for the benefit of the public sector entity. (Shleifer 1995) Looking at this shareholders constituency, it is clearly understood that the key consultations has been held with the governmental representatives, and openness and involvement had to be the basic principles of the company's practice. The approach of the company to the process of consultation with the key shareholders and stakeholders was the following: ensuring that the consultation will work for the benefit of the people involved and will ultimately lead to certain positive effects for the company in general; ensuring that the results of the consultation with the governmental representatives are used in the positive decision making for the entity; improving the process of consultation between the key shareholders and stakeholders themselves as well as between these shareholders and the managers of the entity; providing better value for money.
An evaluation of the ethical dilemma Trying to critically appraise the engagement processes, it should be noted, that governmental representatives in this pubic entity have been admitted to be well informed in the process of the company's operation, and their aim was not to put certain administrative restrictions on the company's operation, but to give the managers, through the process of consultation with them, to provide innovation and reforms for the benefit of the entity and the staff. First of all, the strategy had to work for avoiding the fatigue among the participants of the consultation process and enable to plan the consulting activity. This approach gave the company an opportunity to plan the way the consultation should be held among the key stakeholders and simultaneously allow the managers who would take part in the process to at least approximately predict the outcomes and the reactions of the key shareholders. Another objective was providing the key shareholders with effective participation in the business operation of the entity. It sometimes happened that certain governmental representatives, who usually visited the meetings with staff, were not involved into conversation for various reasons.
Taking into account this fact, the management understood the necessity of making all governmental representatives participate in the discussion. With the implementation of this principle, the company has received a number of extremely interesting ideas for the general operation improvement. However, one more objective had yet to be implemented it was extremely important to ensure that the consultation with the governmental structures would bear certain strict standards and possess clear guidance. The consultation with the key shareholders didn't have too many different forms, as it has been with the minor shareholders, with whom the managers could consult through electronic means and questionnaires. The consultations with the key shareholders always had the form of conferences or meetings. However, in the recent time the company is getting used to holding the conferences via electronic visual means.
It should be recommended for the company, to acknowledge the consultation process as the means of giving and receiving information, which may be ultimately used for the benefit of the company. This principle has been implemented into the company's consultation strategies only recently, with the earlier consultations being the means of ensuring the authorities and governmental representatives in the necessity and usefulness of this or that management step or action. The side to be consulted is different at times the key shareholders need consultation for clarifying certain questions related to the company's activity; at times the managers and the Board themselves need to consult their shareholders before taking certain steps in the company's development. In any case, it is very important to provide both parts with all the information necessary, as the level of engagement into the consultation process if defined by the amount of information the participants possess. With the successful experience of consultations, more shareholders and managers may be involved into the discussion, but as in our case the main stakeholders is the government, this positive experience may work for encouraging its representatives for more active cooperation with the executives and the board.
The process of consultation with the key shareholders should also acquire more targeted character, as the authorities are those who have certain weight among the population, and exert serious influence on the public activity. The company with the involvement of the key shareholders into the process of operation should also provide public accountability, which will ultimately lead to the better public services, and thus create higher profits and returns. (Shleifer 1995) In the year 2002, there has been performed analysis of he consultation outcomes for defining its effectiveness and providing recommendations for the future. it has been discovered, that in 23 out of 25 cases under research, the impact of consultation with the key shareholders on the outcomes was extremely significant and in fact, determining. In 4 cases the outcomes of the consultation has been unexpected for all parties, and the results of the consultation have made crucial impact on the process of decision making. However, this analysis has revealed the problems which existed in the public entity the results of the consultation were not always implemented effectively, as well as the time frames for the implementation of the results were often set incorrectly. (Shleifer 1995) Conclusion The processes of corporate governance and consultation with the key shareholders and stakeholders have acquired new meaning for the corporations in the modern environment. Though these processes carry drastic differences between the public and the private sectors, it is necessary to admit, that their implementation in the public entities will lead them to the new level of profitability and business operation.
In this vision of the boards role, the hapless directors spend their time making trade offs - caught between the demands of investors and employees, between the short term and the long term, between investing to protect the environment or communities and investing for growth. There may necessary tension in defining priorities, but it is unrealistic to see the fault line in decision making as falling along split interests of shareholders and stakeholders. Why? Because their core of common interest is in the long term prosperity of the corporation.
Hence, shareholders need stakeholder interests to be taken care of by the board. The active and informed shareholder should be the stakeholders best friend, because they are the best shot anyone has of keeping the board efficient and accountable. (Shleifer 1995) References Whicker, Maria Lynn & Arson, Todd W. (1990) Corporation management. Praeger Publishers, New York. Diamond, Douglas W, (1995) "Financial Intermediation and Delegated Monitoring, Review of Economic Studies, Volume 51, Issue 3, 393 - 414 Andrei Shleifer & Robert W. Vishnu. (1995) "A Survey of Corporate Governance Journal of Finance 1741, Harvard - Institute of Economic Research. Kevin M.
J. Kaiser, 1996. " European Bankruptcy Laws: Implications for Corporations Facing Financial Distress, Financial Management Association, vol. 25 (3), Fall.
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Research essay sample on Board Of Directors Ethical Dilemma
