Shareholders vs. Stakeholders

Jul 02, 2014

Most closely held companies think about their shareholders in ways that are different, in my opinion, than a publicly traded company. Shareholders have a far different impact on the company and how it’s managed in a closely held environment than what most publicly traded companies experience.

A few weeks ago I was having lunch with a CFO from one of my closely held clients and we were talking about his goals for the year and what issues he thought were the most important to accomplish throughout the year. As we talked through each of the goals it became clear that he was interchanging the best interest for the stakeholders with the best interest for the shareholders. In many cases, those interests are identical and it’s easy to interchange one with the other. However, in this case the shareholders have very specific ideas related to the future of the company and how resources should be used to meet both corporate and individual goals. This CFO was rather new to his position and was beginning with the assumption that only the corporate goals were worthy of concentrated effort in the next months. It was clear to me that the corporate goals, although well intended and beneficial to the company, must be undertaken with the stakeholder goals also given their due consideration.

That whole line of reasoning started me thinking about how and why stakeholders might have a different perspective than shareholders in some very specific issues associated with corporate governance. I believe the most successful CFOs in a closely held environment balance those two differing perspectives to the benefit of both as much as possible. I have seen many circumstances where individual shareholder goals override what is in the best interest of the stakeholders of the corporation but those situations are many times driven by special needs of the shareholders and do not represent the best method of operation for the closely held company.

I’m sure we’ve all seen closely held companies which end up being primarily lifestyle supporters of the owners, but that all too often is short lived. That line of reasoning causes the company’s management team to be constantly focusing on and maximizing shareholder goals. A more balanced approach would be to think about the overall company as well as providing lifestyle support to the shareholders. This usually results in a far stronger company and a more motivated management team. The management team and other stakeholders who are not shareholders will find it worth-while to will work hard to strengthen the company that they work for to provide long-term stability.

Categories: Cost Accounting