Shareholders in Business - Essay Example

Discuss, Using Theoretical Perspectives on Corporate Governance Introduction In the present day competitive environment, it is important that business units operate in a manner where they can assure the deliverance of effective products and services that can ensure long term business sustainability along with competitive advantages over the competitors. However, apart from products and services, companies also need to ensure that their operations are conducted in a legal and ethical manner so that the interest of the stakeholders and investors remains intact for a longer duration (Slorach, Embley, Goodchild & Shephard, 2013). With the downfall of companies like Enron and WorldCom, it has become evident that there is high chances for companies to involve in accounting frauds so that they could be able to earn unethically harming the interest of the investors (Mallin, 2013). Contextually, shareholders now-a-days have become more responsible and aware with regard to the use of their rights and responsibilities in order to intervene into the operations of business they invest their money in. Contextually, the aspect of shareholder activism came into prevalence, which will be highlighted in the later part of the essay. Discussion Shareholder’s activism is a particular approach of individuals, which are intended towards ensuring change within the operations of any particular business. A person or shareholder who is involved in intervening in the operations of the companies is regarded as shareholder activist (Smith, 2014). This aspect was largely seen in the UK in the recent times where shareholder activism came into prevalence owing to shareholder spring. Shareholders mainly use these rights to ensure that their investment in any business yield worthy results (Ficenec, 2014). Shareholder Spring Shareholder spring is a particular scenario in the UK where few of the shareholders rebelled against the companies who were involved in excessive par rise for the executives during the spring of 2011. Notably, some of the shareholders showed their dissatisfaction towards the pay structure to the CEO of Barclays, which has a £17 million package. Similar approach of the shareholders has also been seen against the remuneration package of the CEO of Aviva. Shareholders hold the belief that extreme rise in the pay scale of the executives would certainly result in lesser success in terms of profitability for the overall business and likewise their interest on investment might also get hampered. Reason for Shareholder Spring It is often argued that there is a resemblance of shareholder activism with the emergence of recent shareholder spring in the UK. In the recent years, shareholders owing to some of their rights as investors has raised concern over the pay packages along with the policies of some of the top officials of the UK based firms towards their executives. It has also been argued that shareholder spring has also emerged again in the UK owing to some of the unethical boardroom pays amid some of the notable players of the nation. Companies such as Pearson, Barclays and AstraZeneca are deemed to be the target of shareholder activist in the present revolution of shareholder spring in the UK (Davies, 2014). Though policies and pay packages is often regarded to be the most vital aspect that triggers shareholders activism in the UK, but at the same time there are some other reasons which could not be ignored. Incentive packages for the executives also serve as a vital reason for the emergence of shareholder spring. Incentives come from the shares for the directors, which are required to be used for strengthening the performance of the business. However, at times executives use such incentive for their personal benefits, which is not appreciated by shareholders. Furthermore, exit packages for the executives, which are not in alignment with the interest of the shareholders might also act towards triggering shareholder spring (Corkery & Medarevic, 2013). Succession planning is also an important factor that has contributed towards the emergence of shareholder spring. Companies often invest hefty amounts in strategising their succession planning that might act against the interest of the shareholders with regard to their Return on Investment (ROI) (Oakley, 2013). Apart from that strategic partnership of companies such as mergers and acquisitions also give rise to scenarios of shareholder spring. Notably, mergers and acquisition as a factor for the emergence of shareholder spring can be justified by the fact that merger amid Xstrata and Glencore were largely criticised and challenged by the shareholders of the company owing to the belief that their interest will be at stake with this particular approach of the companies (Freehills, 2014; Dunn, 2012). Additionally, spin-offs are also regarded as a potential factor that can influence shareholders to adopt an activist approach. Spin off is a particular approach that is deemed to be beneficial for companies, employees as well as its shareholders in a comprehensive manner, since it involves the increasing value of the business. Companies that are reluctant towards spin off owing to some of their strategic commitments are deemed to face activist approach amid the shareholders (The Timken Company, 2014). Implications of Shareholder Spring Shareholder spring against the management of any particular business often results in increasing the value of the shareholders and their rights within a particular business. Since, this particular approach are mainly shown against extensive rise in remuneration and pay scale of executives, the result can be in the form of forced exit of the CEO or top level management and reduction in remunerations at times. The movement is also expected to enhance the sense of responsibility of the business towards their shareholders and their invested amount so that mutual benefits could be attained (Plender, 2012). Conclusion From the overall analysis of the paper it can be concluded that with the change in the structure of the contemporary business, the role and the importance of shareholders has become quite prominent owing to their significant contribution towards the establishment of any particular business. However, some of the unethical conduct of the business units often ends up keeping the interest of the shareholders at stake, which gives rise to the aspect of shareholder activism and consequently shareholder spring. These approaches force companies to work in alignment with the interest of the shareholders in a comprehensive manner altogether. References Corkery, J. & Medarevic, S. (2013). Executive remuneration under scrutiny: The cutting edge of the shareholder spring. Bond University, 1-17. Dunn, G. (2012). From the shareholders spring to the autumn of activism, power without accountability. Retrieved from http://www.gibsondunn.com/publications/pages/FromShareholderSpring-ToAutumnOfActivism.aspx Dubbs, T. (2012). UK “shareholder spring” shines a spotlight on governance weaknesses. Retrieved from http://www.lapfinvestments.com/2012/08/uk-%E2%80%9Cshareholder-spring%E2%80%9D-shines-a-spotlight-on-governance-weaknesses/ Davies, R. (2014). A second shareholder spring? angry investors lead new spate of revolts over excess boardroom pay. Retrieved from http://www.thisismoney.co.uk/money/markets/article-2613466/Angry-investors-lead-second-Shareholder-Spring-number-revolts-place-excess-pay.html Freehills, H. S. (2014). Shareholder activism in the UK. Retrieved from http://www.herbertsmithfreehills.com/-/media/Files/PDFs/2014/ICLG%202014%20-%20Shareholder%20Activism%20in%20the%20UK.PDF Ficenec, J. (2014). Shareholder spring crushed as executive pay soars. Retrieved from http://www.telegraph.co.uk/finance/markets/questor/10994693/Shareholder-spring-crushed-as-executive-pay-soars.html Mallin, C. (2013). Corporate governance. US: Oxford University Press. Oakley, D. (2013). Companies: up in arms. Retrieved from http://www.ft.com/cms/s/0/4d3690b8-9d34-11e2-a8db-00144feabdc0.html#axzz3JxoPg6UR Plender, J. (2012). A ‘shareholders’ spring’ is not enough. Retrieved from http://www.ft.com/intl/cms/s/0/c1dad0ec-a405-11e1-8878-00144feabdc0.html#axzz3JxoPg6UR Smith, O. (2014). Shareholder spring is back. Retrieved from http://www.cityam.com/article/1400201266/shareholder-spring-back Slorach, S., Embley, J., Goodchild, P., & Shephard, C. (2013). Legal systems and skills. US: Oxford University Press. The Timken Company. (2014). Timken completes spinoff of Timken steel corporation. Retrieved from http://news.timken.com/index.php?s=12504&item=136863 Bibliography Guardian. (2013). A year after the shareholder spring, the green shoots of rebellion are withering. Retrieved from http://www.theguardian.com/business/2013/mar/10/year-after-shareholder-spring-rebellion-wither Myles, D. (2012). Stronger say-on-pay means shareholder spring to stay. Retrieved from http://www.iflr.com/Article/3066760/Stronger-say-on-pay-means-Shareholder-Spring-to-stay.html Rezaee, Z. & Riley, R (2011). Financial statement fraud defined. US: John Wiley & Sons. Read More