Management-Shareholders Dichotomy

The management and shareholders are the most two important stakeholders in an organization. The two stakeholders are so dependant on each other such that one can not do without the other (Hopper, 2012). Shareholders invest in an organization expecting to get profits from their investments while at the same time the company management has the responsibility of ensuring that the shareholders’ investments are safe and secure. In order for management and shareholders to maintain a good relationship, it is important for them to clearly understand the dichotomy between them (Henry, 2008). Corporate conflicts arise when the management and shareholders overrun their scope of operation or mandate. There is a distinction between the management of an organization and its shareholders. In most cases, the management is normally confused with ownership (Henry, 2008). Although some members of the management team may double up as shareholders, the two scenarios should be understood to be different entities. The roles and scope of operation of management and shareholders are completely different and it is important for both sides to understand their place within the organization (Henry, 2008). In other instances, the members of the management team are not allowed to have shared within the organization that they work for. Members of the management can only be shareholders if the company articles allow them (Ali, 2011). There is always a lot of confusion in private companies because of the separation in law between shareholders management. There are specific roles designated for shareholders which can not be carried out by management. Companies are managed by directors that constitute the board (Ali, 2011). Shareholders own the company and are always referred to as members. This paper will highlight the dichotomy between management and shareholders within an organization.

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The management runs an organization on a daily basis and is charged with the responsibility of making important decisions that affect all operations within an organization (Rappaport, 1999). The management has a great responsibility for ensuring that an organization is always up and running (Hopper, 2012). The management, therefore, has an enormous obligation compared to shareholders. The management is accountable to shareholders and other stakeholders who are involved with the company both directly and indirectly (Hopper, 2012). The management should always act in the best interest of the company and should have shareholders’ interests in mind when making important decisions. Shareholders invest their money in a company in exchange for shares from the company (Henry, 2008). Despite having shares in a company, shareholders to not have complete control of the day to day running of an organization (Henry, 2008). It is important for both the members of the management team and shareholders to familiarize with their duties and responsibilities in accordance with the law. Although shareholders do not run an organization on a daily basis, there are certain powers prescribed within the law that can only be exercised by shareholders (Henry, 2008). These powers can not be exercised by the management except with the permission of shareholders. The company constitution can only be adopted, revoked or altered by shareholders. Important shareholder decisions are normally made during the annual general meetings organized within the organization (Ali, 2011). Shareholders have the power to amend shareholder rights without the interference of management. Before an organization makes a major financial transaction, the management has to seek the approval of shareholders because it is their money being spent. Transactions that involve huge amounts of money such as acquisitions can only be approved by shareholders (Ali, 2011).

The management of an organization consists of directors whose appointment and removal is done by shareholders (Ali, 2011). The appointment and removal of directors is a very sensitive thing that needs to involve shareholders. Directors make important management decisions that affect the organization and therefore the shareholders have the responsibility of appointing competent members of the management team and at the same time sacking incompetent ones. The shareholders have the responsibility of approving an amalgamation (Overbeek, 2007). In a case where a company is in a financial crisis, shareholders have the power to put the company into liquidation. It is important to note that even the majority of shareholders can not just do whatever they want in an organization without following the due process (Overbeek, 2007). Companies have a separate legal identity from shareholders and therefore shareholders are expected to accept and respect the difference. Compliance with all laws and regulations is also expected from shareholders. Shareholders should maintain a good relationship among themselves to avoid any unnecessary disputes within the organization (Hopper, 2012). The relationship between shareholders and company management should be cordial for the success of the company. Shareholders have a right to get their dividends within the specified period without any delays (Hopper, 2012). Shareholders should leave the management to carry out its legal duties without any kind of interference. This also applies to cases where a company is owned by one person (Hopper, 2012). The individual owner of a company only becomes the company shareholder and nothing more than that. There is always a tendency of individual company owners overstepping their mandate to interfere with the work of management on the basis of being owners. The management and shareholders have separate legal commitments that both of them need to observe (Hopper, 2012).

The management of an organization is normally appointed by shareholders and its roles and responsibilities are stipulated in the company constitution (Miller, 2011). The management is expected to work and operate within its mandate the same way as shareholders. Although the management works hand in hand with shareholders, there are some specific roles that are supposed to only be played by management. The responsibilities of management are very many compared to shareholders’ (Fernando, 2009). This is due to the fact that management runs an organization on a daily basis. The goals and objectives of an organization are normally developed by the management team. Conscious decision making and clear communication within the organization are some of the fundamental roles of the management team. It is the responsibility of company management to ensure operational, commercial and financial sustainability (Fernando, 2009). The financial position of any organization depends on the performance of the management team.

The management is expected to respond to all emerging situations within the organization in an appropriate manner. All organizational inquiries are normally directed to the management team for a response (Henry, 2008). It is the responsibility of the management team to develop and maintain contact with shareholders and other stakeholders. The management has the responsibility of enforcing company rules and regulation within the organization without any fear or favour (Henry, 2008). The management is expected to give feedback to shareholders and the board of directors when called upon to do so. Company policies are set up and implemented by the management team with the approval of the board of directors (Henry, 2008). The management prepares the financial report of a company and other performance-related reports for presentation to shareholders (Henry, 2008). The management also has the responsibility of maintaining discipline within an organization by taking the necessary actions against those employees who do not follow company rules and regulations (Henry, 2008). The progress and well-being of the personnel within an organization is the management’s responsibility. The management has the duty of promoting integrity within the organization and at the same time ensuring that the working relationships within the organization are good (Ali, 2011). The procedures and guidelines of a particular organization are normally instructed by the management team in co-ordination with supervisors.

In highlighting the dichotomy between management and shareholders, it is important to note that the administrative responsibilities of an organization are normally carried out by management (Ali, 2011). Apart from administering company procedures and regulations, the management keeps attendance records of all employees (Ali, 2011). All leave issues are sorted and approved by management in accordance with company policies. The management plans for travel arrangements of its employees as well as certifying overtime records to ensure that employees are remunerated according to their performance (Ali, 2011). The company property is always under the care and protection of management, and therefore shareholders have a right to question the management in cases where the company property and assets are being mismanaged (Miller, 2011). Companies are expected by the law to provide safe working conditions for their employees through an initiative that should be facilitated by the company management. All accidents that take places within the company have to be reported to the relevant authorities by management. The management should also hold regular meetings with employees to exchange views and ideas that can develop the company (Miller, 2011). Employees are able to resolve work-related issues with the help of company management.

In conclusion, the dichotomy between management and shareholders clearly demonstrates that the roles and responsibilities of management are completely different from those of shareholders. The management and shareholders are two independent parties with similar values and goals. Despite having different roles and responsibilities, the management and shareholders expect the company to make profits (Miller, 2011). Although the company and shareholders may have divergent opinions on how the company should be run, it is important for the shareholders to give management the freedom to come up with its strategies and ideas that can make the company profitable. Shareholders together with management measure the performance of a company on a short-term and long-term basis (Miller, 2011). The relationship between the management and employees should not in any way be interfered with shareholders. The management can do things it’s a way provided that the shareholders’ goals are met. (Rappaport, 1999) The management can make some decisions that are unpopular to shareholders but protect the interests of the company and employees. The conflicting interests between management and shareholders affect the principles and values of a company is a great way (Rappaport, 1999).

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The maximization of the share price is always a primary objective of all companies irrespective of differences between management and shareholders. The power equilibrium should always be maintained in an organization to ensure that the interests of all stakeholders are met. From this discussion, it is clear that company management plays a crucial role in a company’s sustainability and development (Fernandez, 2002). The management team controls all process and operations within an organization. Some shareholders only expect the company to make profits without actually caring about the challenges that the management team faces (Fernandez, 2002). The roles, responsibilities and tasks of company management are enormous because it controls all aspects of within an organization. The management and shareholders should, therefore, maintain a cordial relationship despite the difference in roles and responsibilities.

References

Ali, P., (2011). International corporate governance after Sarbanes-Oxley. New York, NY: John Wiley & Sons.

Fernando, A., (2009). Corporate governance: Principles, policies and practices. New Delhi: Pearson Education India.

Fernandez, P., (2002). Valuation methods and shareholder value creation. New York, NY: Academic Press.

Henry, A., (2008). Understanding strategic management. London: Oxford University Press.

Hopper, T., (2012). Handbook of accounting and development. New York, NY: Elgar Publishing.

Miller, E., (2011). Mergers and acquisitions: A step-by step legal and practical guide. New York, NY: John Wiley & Sons.

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Overbeek, H., (2007). The transnational politics of corporate governance regulation. New York, NY: Routledge.

Rappaport, A., (1999). Creating shareholder value: A guide for managers and investors. New York, NY: Simon & Schuster.

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