What are the responsibility of Company Directors Shareholder Interests versus Other Stakeholder Interests?

In several countries across the globe, the primary duty for board members is to 'act in the best interest of the company'. However, the persistence question that arises is for whom or for what is the board obliged to. This stems from the different roles and responsibilities of directors to accomplish their duties. In terms of the management expert Adam Smith, the actions of best interests include positive externalities which benefit not only the self-interested groups but also the environment or community in which they are embedded. In the corporate scenario, the constructive board actions have a positive externality over shareholders with its benefits measured through their wealth maximization. This report discusses whether the board has to focus on maintaining shareholders' interests alone or extend their obligation to other stakeholders. It is observed that as representatives of shareholders, the board manages the company and play a significant role in strategic decisions. Any negative outcome of strategic initiatives has serious implications on stock value affecting shareholder interests and generates a ripple effect on other stakeholders. Though the board is legally bound to shareholders, their engagement with other stakeholders is essential for the smooth operations and improved performance of the company. Thus, the board has to work in maintaining the interests of all stakeholders.

Introduction

One of the main roles of the board of directors is to manage organisational activities and to meet shareholders' interests. The board is a representative of shareholders to manage business operations and the directors are accountable for their decisions, actions and company's performance. The board acts as a control mechanism to safeguard shareholders' equity as well as maintain the cost of capital (Switzer & Cao 2011). As per the statutory regulations, directors are responsible for making suitable decisions to implement appropriate action plans. They have to act in the best interests of the company and engage in conflict management arising from external forces. It is to be noted that shareholders are given high priority when compared to other stakeholders in accordance with the corporate law. This report discusses whether the board of directors has to vest their interests in shareholders alone when compared to other stakeholders and recommendations are suggested for addressing various stakeholder interests during decision-making.

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