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Assessment Task 2
Due Date: 5.00pm Monday 7 August 2017
Length: 2,000 words total (+/- 10%). Reference list and cover sheet details are not included in this word-limit total.
Weighting: 25% of total unit marks
∙ Demonstration of knowledge of the issues and evidence of wide reading to support your analysis
∙ Demonstration of your ability to apply the knowledge to identify keys issues leading to your recommendations
∙ Evidence of sound reasoning and the exercise of professional judgement to support your recommendations
∙ Development and statement of concise recommendations for presentation to the AICD
∙ Overall structure and professional presentation of the report to the AICD
∙ High quality written communication of concepts and terms in ordinary English as not all readers of the report can be assumed to be specialists competent in corporate governance
'As a separate legal person, a corporation has two basic objectives: To survive and to thrive. Shareholder value is not the objective of the corporation; it is an outcome of the corporation's activities. While shareholders entrust their stakes in a corporation to the board of directors, shareholders are just one audience among others that the board may consider when making decisions on behalf of the corporation.
These audiences, typically called stakeholders, may also include other financial stakeholders, such as bondholders, and nonfinancial stakeholders, such as employees, customers, suppliers, and NGOs representing various concerns of civil society. In the face of limited resources, no matter how large the corporation, directors must make choices regarding the significance of the corporation's many audiences.'
Source: Robert G Eccles and Tim Youmans (2015) 'Why Boards Must Look Beyond Shareholders', MIT Sloan Management Review
Assume you have been employed as a corporate governance consultant by the Australian Institute of Company Directors (AICD). The AICD is concerned that many company directors hold the opinion that the company's board of directors has a responsibility to place the interests of shareholders above all other stakeholder interests.
Your assignment is to prepare a report to be submitted to the AICD evaluating the evidence that the responsibility of a company director is to place shareholder interests above those of other stakeholders. Specifically, the AICD has requested that your report contain evidence, examples and recommendations for company directors that will guide them when making board decisions so they are responsive to diverse stakeholder audiences. The AICD has advised you that they intend to make your report a public document and it will be uploaded to the website so it can be read by both corporate governance specialists and non-specialists.
Corporate governance is an important area that the board of directors have to take care of. A corporation has various people who have an interest in its work and growth. These interested parties are referred to as stakeholders. Most directors prioritise only the shareholders over all other shareholders, and as a result of many often, there is discontent among other stakeholders. This report showcases the role of various stakeholders that include shareholders, customers, employees, financial institutions, society and governing bodies. Although shareholders have greater power and influence over the conduct of the business, all other stakeholders provide the much-needed support in terms of manpower, finance, credit backing, goodwill and materials for the running of the business.
Shareholders often get involved in the act of lobbying and use the power of their votes to influence corporate decisions. They provide major financial contribution in terms of capital investment and expect growth and capital gains. Hence, they are definitely the most important stakeholder. But without employees, there would be no conduct of business, and without the support of governing bodies, the conduct of business is impossible. Due to these reasons, every corporate director has to analyse each situation on a case to case basis and prioritise the interests of various stakeholders.
Australian Institute of Company Directors (AICD) has asked for evaluating the responsibilities of a company towards all its stakeholders, including the company’s shareholders. While every company that has or intends to raise funds for its business has to keep its shareholders happy, it is also imperative to provide sufficient impetus to other stakeholders such as employees, vendors, customers, governing bodies and the board. This report aims to evaluate and assess the role of various stakeholders in a business and to guide the director about the responsibilities towards the various stakeholders.
Stakeholders of an organization
Although Shareholders of the organisation occupy the most important position in most companies (Alexander, et al., 2015), stakeholders – those who have an interest in the organisation but do not own a share of it are also important. There are various stakeholders that form part of a business or non-profit entity.