OEAC 2nd Assignment

Assignment # 2
Corporate Governance
Corporate governance is the system of rules, practices and processes by which a company
is directed and controlled.
Corporate Governance refers to the way in which companies are governed and to what purpose.
It identifies who has power and accountability, and who makes decisions. It is, in essence, a
toolkit that enables management and the board to deal more effectively with the challenges of
running a company. Corporate governance ensures that businesses have appropriate decision-
making processes and controls in place so that the interests of all stakeholders (shareholders,
employees, suppliers, customers and the community) are balanced.
Governance at a corporate level includes the processes through which a company’s objectives
are set and pursued in the context of the social, regulatory and market environment. It is
concerned with practices and procedures for trying to make sure that a company is run in such a
way that it achieves its objectives, while ensuring that stakeholders can have confidence that
their trust in that company is well founded.
As the home of good governance, the Institute believes that good governance is important as it
provides the infrastructure to improve the quality of the decisions made by those who manage
businesses. Good quality, ethical decision-making builds sustainable businesses and enables
them to create long-term value more effectively.
What Is a Stakeholder?
A stakeholder is a party that has an interest in a company and can either affect or be affected by
the business. The primary stakeholders in a typical corporation are its investors, employees,
customers, and suppliers.
However, with the increasing attention on corporate social responsibility, the concept has been
extended to include communities, governments, and trade associations.
Understanding Stakeholders
Stakeholders can be internal or external to an organization. Internal stakeholders are people

whose interest in a company comes through a direct relationship, such as employment,
ownership, or investment.
External stakeholders are those who do not directly work with a company but are affected
somehow by the actions and outcomes of the business. Suppliers, creditors, and public groups
are all considered external stakeholders.
Example of an Internal Stakeholder
Investors are internal stakeholders who are significantly impacted by the associated concern and
its performance. If, for example, a venture capital firm decides to invest $5 million in a
technology startup in return for 10% equity and significant influence, the firm becomes an
internal stakeholder of the startup.
The return on the venture capitalist firm's investment hinges on the startup's success or failure,
meaning that the firm has a vested interest.
Example of an External Stakeholder
External stakeholders, unlike internal stakeholders, do not have a direct relationship with the
company. Instead, an external stakeholder is normally a person or organization affected by the
operations of the business. When a company goes over the allowable limit of carbon emissions,
for example, the town in which the company is located is considered an external stakeholder
because it is affected by the increased pollution.
Conversely, external stakeholders may also sometimes have a direct effect on a company without
a clear link to it. The government, for example, is an external stakeholder. When the government
initiates policy changes on carbon emissions, the decision affects the business operations of any
entity with increased levels of carbon.
Problems With Stakeholders
A common problem that arises for companies with numerous stakeholders is that the various
stakeholder interests may not align. In fact, the interests may be in direct conflict. For example,
the primary goal of a corporation, from the perspective of its shareholders, is to maximize profits
and enhance shareholder value. Since labor costs are unavoidable for most companies, a
company may seek to keep these costs under tight control. This is likely to upset another group
of stakeholders, its employees. The most efficient companies successfully manage the interests
and expectations of all their stakeholders.
Stakeholders vs. Shareholders
Stakeholders are bound to a company by some type of vested interest, usually for the long term
and for reasons of need. Meanwhile, a shareholder has a financial interest, but a shareholder can
sell a stock and buy different stock or keep the proceeds in cash; they do not have a long-term
need for the company and can get out at any time.
Why Are Stakeholders Important?
Stakeholders are important for a number of reasons. For internal stakeholders, they are important
because the business’s operations rely on their ability to work together toward the business’s
goals. External stakeholders on the other hand can affect the business indirectly.
For instance, customers can change their buying habits, suppliers can change their
manufacturing and distribution practices, and governments can modify laws and regulations.
Ultimately, managing relationships with internal and external stakeholders is key to a business’s
long-term success.
Are Stakeholders and Shareholders the Same?
Although shareholders are an important type of stakeholder, they are not the only stakeholders.
Examples of other stakeholders include employees, customers, suppliers, governments, and the
public at large. In recent years, there has been a trend toward thinking more broadly about who
constitutes the stakeholders of a business.

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Assignment # 2

Stakeholders can be internal or external to an organization. Internal stakeholders are people

Example of an Internal Stakeholder

Example of an External Stakeholder

Stakeholders vs. Shareholders

Why Are Stakeholders Important?

Are Stakeholders and Shareholders the Same?

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