A business is organized so that decisions are made by decision makers (stakeholders) and implemented by people who have responsibility for implementing those decisions (shareholders). In a democratic country, however, the business is often run by management teams, where each member of the team has the same level of authority and power. In this type of business, employees play a greater role and have greater influence over business decisions.
In a democratic society, there is generally no conflict between the interests of employees and those of shareholders, since the interests of the two groups are aligned. The best organizations effectively manage their stakeholders’ expectations and self-interests. A business owner can be negatively impacted by the activities of another business, as a whole, as long as those activities affect the operations of the business. Customers and employees often share a stronger relationship with and are more informed about a business than investors do.
A business’s ability to meet its goals can be negatively affected when decisions are made by those who have no stake in the company’s ability to achieve those goals.For example, a business owner who Tom Rollins doesn’t own a stake in the business may not have an interest in promoting a new product.
However, if that same business owner owned a significant amount of stock in the business, he would have a vested interest in seeing that the business succeeded. He may not want to see the business fail, but he may also not want the business to fail even if it means that he will lose his investment.
Because investors have a stake in the success of a successful company, they usually have a direct impact on how the business is run. Their investment in the company could either directly or indirectly affect how the company does business, including issues such as whether it is maximizing its opportunities for growth and success or if it is not making good decisions regarding its investments.
A business that manages its finances in a way that ensures that it keeps its debt to equity ratio as low as possible is likely to be in a better position to make decisions that affect its performance and achieve its goals than a business that uses credit to finance its growth. because it allows more cash flow.
A business may also be in a better position to successfully manage its operations if it focuses on creating an environment where it is easy to obtain financing. If a business is in a competitive market, lenders need to believe that the company is able to continue to make future payments on its debt. Investors may be less willing to extend credit if the business does not have sufficient cash available on hand. A business that invests in projects that offer growth opportunities for future income may be seen by investors as being a company that is a riskier investment than one that concentrates on immediate cash flow.
By having members of the management team that have a vested interest in the success of the business and those who share a vested interest in the success of the company, it is possible to successfully operate a business that effectively manages its own interests as well as the interests of other stakeholders, such as customers and employees. By focusing on both, it is possible to create a business that is both successful and profitable.
In addition to these, it is often important to include the input of all stakeholders when designing a structure for a business. While the stakeholder versus shareholder analysis may not be as important as the overall design of a business structure, it is critical to ensuring that the overall direction of the business is well suited to the needs of its stakeholders.
It is also important to include all stakeholders during the design phase of any project because everyone has an inherent interest in what the management team can and cannot accomplish. If the goals of each stakeholder are clearly defined and the business is designed with an appropriate balance of all stakeholders in mind, it is possible to achieve both the objectives of the stakeholders and to have success for all.
Successful business managers know how to effectively manage their stakeholder relationships by ensuring that their interests are represented by their management team. If the stakeholders have a direct stake in the success of the business and have an interest in the company’s growth, it is possible to accomplish both