Analysis and Reflection on Shareholders Priority

Analysis and Reflection on Shareholders Priority

When it comes to corporate governance, there is an important topic worthy of discussion, that is, which should be given priority to between shareholders and stakeholders. Enterprises based on different market, cultural, economic and other elements in all countries give a different answer from both in theory and practice. This essay will briefly review the two main points of view and arguments. Then, according to the requirements of the distribution of issue, it will analysis the reason why Anglo Corporations must focus on shareholders, and discuss the characteristics and influence of the management mode with the priority of shareholders. Finally, this paper attempts to evaluate the above views and practices, and gives the appropriate recommendations. All of the above discussion will be carried out under the background and support of corporate governance theory.

1. Literature Review

The essence of the problem that who takes priority between shareholders and stakeholders is: the purpose of corporate governance is to realize whose interests, in other words, whom you did it for is the most important issue. On this issue, there are two controversial and representative views. The theory of "shareholders priority" takes the maximization of shareholder`s value as the goal of corporate governance, which is based on the theory of " capital employed labor ", principal-agent theory and the unilateral governance of shareholders. On the contrary, the theory of "stakeholders priority " takes the maximization of interests of stakeholders as the objective of corporate governance, and advocates the common governance of stakeholders, which is based on stakeholder theory.

1.1 Shareholders Priority

The management principle of "shareholders priority " is a traditional view of corporate governance. This view sees the investors, who are also can be called shareholders as the owner of company. Thus, company's rights are getting from shareholder, the company should attempt to maximize the interests of shareholders in corporate governance.

Logical connotation of this theory is that shareholders establish the company with money, elect the board of directors and hire managers and employees. The power of the company comes from the original property of shareholders. Corporate governance works through allocation of various resources of the company. As an investor in the capital of the material capital, the shareholders are the real risk takers of the enterprise. In addition, the relationship between shareholders and other stakeholders is mutual checks and balances, so there is a quality of inevitability in shareholders priority. In the industrial economy era, the main factors of production are land, labor and capital, and the knowledge resources are only in a subordinate position. So other stakeholders have to abandon the requirements of enterprise ownership temporarily and become fixed income earners.