Apparently there are a
growing number of companies that are granting ownership rights to stakeholders,
(managers) differently from shareholders, (investors). Legally, the
corporation’s ownership rights belong to the people holding equity in the
company, but sometimes corporations shift the allocation of ownership to
stakeholders as incentive for performing in situations that are deemed critical
to the company’s survival.
The investors must appoint
the management that they feel will contribute the most effort to making their
investment effective for their set goals. They have to trust their decision in
appointing the right management will make the best decisions to attain the
investor’s goals for the corporation. The management then communicates the
expectations to the employees to achieve the return on the shareholder’s
investment. The managers get the right people to work in the proper positions,
and communicate clearly the expectations of the company’s goals, and
consequences for not attaining them; the results should be the best effort
attainable for an effective return on the shareholder’s investment.
The perspective of the
proposed contingency stakeholder model is that if each manager works as if they
own the company, they will work harder to make efficient decisions that will
contribute more to the company’s success. Responsibility must be defined at
each level of decision making with right amount of checks in place to maintain
a good balance of productivity and accuracy in achieving the company’s product
or project. Often there are obvious signs that there are problems with
management decisions that go unfixed until there is a major failure. These
problems need to be addressed at the smallest level possible to reduce the
amount of loss of investment by the investors.
Managers own the responsibilities
associated with operating the corporation effectively and efficiently while
maintaining ethical standards that equal or surpass expectations of the law. The
investors will own the financial profit or loss in proportion to their
investment based on the actions of the managers they assigned. The shift of
ownership appears to have the best interest of the investment, but I conclude
that if the result of the ownership is ever that the investors’ profit from a
stakeholder that has been found guilty of operating unethically it will be held
under scrutiny by the public and legal system.
References
Zattoni, Alessandro (2011). Who Should Control a
Corporation? Toward a Contingency Stakeholder Model for Allocating Ownership
Rights. Journal of Business Ethics; Oct2011,
Vol. 103 Issue 2, p255-274, 20p.
Craig,
ReplyDeleteI think in a situation like this is why the Sarbanes-Oxley 2002 act was created. Although there's nothing wrong with companies using incentives for their managers to perform at their best.It can be quite risky using this technique for productivity. If the mangers are in a situation where they are expected to provide the most profitability for investors and not the integrity of the company. I can see the managers focus and desperation to achieve these results.If the managers does something unethical to achieve these results for the investors and the company doesn't have a effective internal control the mangers and investors will lose in the long run.
It can be seen that the inevitable trend is that managers are compensated by ownership. That is the wisest way the investors choose to draw best efforts from managers. But managers are also human being who can make mistakes. So, your writing recalls a committee that must be assigned by board of directors in public corporations. That is the audit committee which has important significance to the auditor as indicated in the Sarbanes-Oxley Act. This committee will on behalf of investors, detect the mistakes of managers. I think ownership compensation, board of directors, audit committee etc is the best structure for public corporations in contemporary.
ReplyDeleteCraig,
ReplyDeleteInteresting article, ideally I would say everyone would put the necessary effort to make a company achieve its goals and objectives, but I don't think there should be a shift in ownership specially if investors profiting from it illegally. Yet, we all know from history sometimes it just implodes as Tuan and Sara pointed out with the Sarbanes-Oxley Act. Also, the outcome from pushing lower level managers has not always reacted the way most intend it to be. So, with that I would have to agree with Sara on using incentives can be very risky.
I would have to agree with the above comments, that the passing of the Sarbanes-Oxley Act was put in place in hopes that unethical behaviors would be discouraged. I believe that having incentives for the managers is a important tool in helping the company's overall successfulness. But there is a fine line that managers are able to cross to receive those incentives, this where SOX can be affective.
ReplyDeleteThere are other way to compensate a manager so he/she will work harder and try to bring out the most productivity out of the employees. Having a manager in place that is respected by his employees is a great start. Having a system in place where every employee in the company gets compensated if the company reaches investor expectation is another. I own a small company and if we meet quarterly projections, my partner and myself treat the employees, and their family, to a nice dinner. If we meet yearly expectations, we treat them to a weekend vacation. I have found that this works for us.
ReplyDeleteCraig,
ReplyDeleteThis is a very interesting article. For me, it is very hard to determine where the line should be drawn. Should managers be granted ownership in the company to increase productivity at the risk of them conducting illegal actions for higher profit or should managers be compensated in other ways where they might lack interest in the success and failure of the company? Overall, I personally believe that granting ownership to managers is a wise approach to increasing management productivity. I understand that this tactic can be very risky as it can lead managers to conduct unethical behavior. However, as Sara mentioned, there is the Sarbanes-Oxley 2002 Act in order to prevent the risk associated with shifting the allocation of ownership. I feel that managers play a very important role, thus their decisions and efforts are vital to the company. Since managers carry great responsibility, I believe they should have incentive as ownerships in the company.