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Essay: The relationship between a company's board, shareholders and stakeholders

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  • Subject area(s): Business essays
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  • Published: 8 October 2015*
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  • Words: 804 (approx)
  • Number of pages: 4 (approx)

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“The system by which companies are directed and controlled” (Cadbury Committee, 1992), is the corporate governance usually defined as. The relationship within a business structure is complicated, its board, its shareholders and its stakeholder. The business direction are given by corporate governance through the business objective set, meanwhile, it is determined to reach the goal and monitor the process (OECD, 2004). The various of stakeholder interests are balanced according to this system.
In recent year, the ‘Enterprise and Regulatory Reform Act 2013′, a vote about directors’ pay is given to the shareholders of UK quoted companies, which is a kind of decision power of the executive compensation.
Since the directors’ pay is an important part in corporate governance, motivate them working and attain company objective. Whether the good or bad condition on executive compensation will affect workers loyalty of company, it is included the salary or welfare of the worker which is the main motivation push them to work. This essay is going to discuss about whether the shareholders should have a right to say on Executive Compensation critically. Real life cases will be included for supporting the point mentioned.
In the circumstance of shareholders have to a say on business executive compensation, to a certain extent it is affecting the office atmosphere. Corporate governance is used to facilitate effective, entrepreneurial and prudent management that can deliver success of the business in long term (The UK Corporate Governance Code, 2004). After the reform of legislation, the directors’ pay are depends on shareholders hand. The confident and loyalty of director will be influenced, not to mention the grassroots worker. It can be said as a better condition of workers received, the better performances they will provide. In order to attain the purpose of corporate governance, the right for shareholder to adjust on executive compensation is needed. In the following parts, the real life cases will be provided to prove it is beneficial to business on allowing decision power to them.
Oracle, is a multinational computer technology corporation. Specialize in designing and developing enterprise software product, its own database system which is the particular technology it focused on. The well revenue brought by its software has lead Oracle be the second-largest software maker after Microsoft. Even in such kind of large enterprise like Oracle, the shareholder arise a doubt on the business performance. It will turns up a pressure on the business director. Since there are some criticism say ‘the company’s ‘lack of communication’ has heightened their concern over pay, boardroom accountability and the independence of non-executive directors.'(David Oakley, 2015) Over the past four year, the union of shareholders request of meeting with director has been neglected, this can be regards as disrespectful to investor. Hence, the shareholders have rejected the executive compensation scheme over the past three years. And they complained that the reduction of director’s remuneration is not enough. The more penalty should be given to director in order to push them tackle the existing obstacles. Normally, the management not willing to negotiate to the union is because of the amended policy may threat to their previous interest. For example like the commission they could receive decreased. As a result, we can concluded shareholders have a say on executive compensation can be a tool to encourage management monitor and control the stakeholders interest balanced, avoided communication problem appear, though it might go to another way. In term of corporate governance, business objective can be attained which could lead to a long-term success of the company. (The UK Corporate Governance Code, 2014)
Another cases is from GlaxoSmithKline, it is a science-led global healthcare company that researches and develop various innovative medical product which headquarter in London. The sixth-biggest scale pharmaceutical company in the world. In 2003, Mr. Garnier, the chief executive officer has been rejected on a proposal would boost the compensation package by the shareholder. It is because of the shareholder started to be alerting their consideration about the business performance under Mr. Garnier (GAUTAM NAIK, 2003). Since the company obtains of strong sales and profit, but its stock price was facing a dilemma because some of the best-selling medicines have face the unexpected cut-price competition. And Mr. Garnier did not have an appropriate solution against it. And so aroused the shareholders’ dissatisfaction to vote in negative. After the ‘golden parachute’ payment to Mr. Garnier being banned, there will be a re-election that purpose for the post of Chief Executive and Chief Financial Officer (BBC, 2003). Hence, the decision power on shareholders can ensure the business operation would not harm to their own interest. When problem arises, reduction on compensation will be given or re-election on the person in charge to solve it. To conclude, in term of shareholders which is beneficial to them if they could have a say on executive compensation as to prevent own interest damaged.

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