Tool Box
Issue No. 8 - December/ 2002/january
Stakeholders v Shareholders - Maintaining Balance in Your Business
by Max Baldock
Stakeholders v shareholders
One of the major long-term viability dilemmas facing business is finding the best balance between maximising profitability and providing the best quality product or service to the consumer. You need only to read the newspapers or watch the television news or current affairs programs to see this dilemma graphically illustrated. We have also seen a constant parade of failed corporations, many of which have foundered in what can only be described as criminal circumstances.
The Enron saga in the USA, branch closures and the decline of bank services particularly to regional Australia, and spiralling health costs against a background of reduced service are just a few examples of institutions failing to achieve a balance between the interests of stakeholders and shareholders. Too often it is the shareholder who receives lower returns for their investments or is deceived by management attempts to cover poor decision-making and management practices and consequent less-than-satisfactory returns.
So, is there a message here for small business? I think there is a very important one.
Small business operators need to determine who are the shareholders and who are the stakeholders of their particular businesses.
Obviously the shareholders of most small businesses are generally the owner-operators represented as sole owners, partnerships or trusts or in some type of limited, family company. In general reporting to shareholders is usually in relatively direct matter. However, deception can occur and is most often of the self-deception kind.
Far too often small business operators have not considered the implications of cashflow or set aside monies for the amortisation of recurring and depreciation costs, and have (wrongly) believed that the financial return from their businesses have been far greater than the true return. In reality, a major proportion has been the capital of the business.
Consequently...
