Introduction
Stakeholders, management, and employees are fundamental parties of organizations, who work collectively to achieve the same goals. The shareholders, who are the main owners of organizations, have a working relationship with the managers, as they always urge the management to strive towards achieving the organizations’ goals and objectives. The agency theory elucidates the relationship that exists between the shareholders and the executives of the company. Shareholders and principals are concerned with daily activities of organizations.
Conversely, many shareholders perceive that managers do not work towards achieving the goals of organizations. Instead, shareholders hold that managers use their positions as opportunities of achieving their personal goals. Therefore, a values conflict arises between the owners and the principals of organizations. Consequently, the conflict compels shareholders to control and oversee the operations of organizations through corporate governance. Thus, the purpose of this essay is to analyze the conflict of values between the shareholders and the managers.
The Components of Values Conflict
In organizations, conflict of values occurs when shareholders, who are the owners of organizations, develop a feeling that managers, who are responsible for the daily activities of organizations, are using their positions as avenues of achieving their personal objectives. Values conflict is associated with managers who use the organizations to meet their own objectives, instead of the values that shareholders have concerning the organizations. Stakeholders perceive that managers do not invest enough time, money, and efforts in boosting organizations to achieve essential growth and development.
Conversely, some managers perceive that shareholders want the organizations to achieve their own interests at the expense of employees. Protagonists believe that shareholders only think about revenues and profit margins of the organizations, but not the overall welfare of the workforce and sustainability of the organizations. Some components of the values conflict include the perceptions held by shareholders and the management concerning administration of the organizations, the attitudes of the shareholders and managers, the level of suspicion among the parties involved, and the arguments presented by the parties.
The Reasons and Rationalizations that the Protagonist Must Counter
From the shareholders’ perspective, managers do not invest enough efforts, money, and time towards organizations’ performance without external control and the application of corporate governance. Instead, managers use their positions to meet their own interests, a behavior deemed as opportunistic by shareholders. Therefore, shareholders observe that devoid of effective corporate governance, managers cannot sustain organizations to survive in the competitive markets.
Shareholders fear that organizations can fail to maintain their market share, and consequently collapse. According to managers, organizations can always succeed through the efforts that employees and the management apply, but not through external incentives such as performance-based pay, which aims at increasing organizational performance. Managers believe that the main goals of the organizations are not profits and revenues, but sustainability and the capacity for delivering the best products that meet the needs of consumers.
According to the protagonists, the reasons and rationalizations that shareholders need to understand are that the nature of competitive organizations is achievable through passion, willingness, and collective cooperation among stakeholders. Thus, protagonists believe that incentives from shareholders are not practical strategies of improving organizational performance in a sustainable manner.
What Key Parties Will Gain or Lose from Corporate Governance?
In successful organizations, shareholders reap benefits, as they receive increased dividends and profits that accrue in these organizations. Consequently, managers and employees experience the accomplishments and receive incentives such as promotions, rewards, and increased remuneration. Among organizations, success transpires when managers and employees work hard, deliver products of the desired quality to consumers, and undertake the right measures geared towards organizational performance.
However, protagonists perceive that incentives proposed by stakeholders to enhance performance will hamper organizational growth and development. Incentive contract dictates that the higher the fixed pay or salary, the lower the performance of managers in achieving organizational goals. From the incentives, managers and employees will only focus on the requirements of the shareholders, who will dictate the organizational development towards their preferred direction.
On the other hand, shareholders stand to benefit from the incentives, since they will have a complete dominance of the organizational operations. Therefore, shareholders will be in a good position to steer organizations to increase performance and consequently generate optimum profits and revenues.
Conclusion
Conflict is a common scenario in organizations due to differences in values held by shareholders, managers, and employees. Shareholders believe that organizations need to maximize profits, increase revenues, and enhance performance. On the other hand, managers think that organizations can succeed through innovation, creativity, motivation, and hard work on the part of management and employees.
According to managers, the innovative nature of employees and managers can fail to effect necessary changes, if shareholders impose performance contract incentives on them. The innovative and creative nature of management and employees will not materialize, since the workforce will work hard to achieve the objectives that stakeholders need. Conflict usually arises when shareholders suspect that managers use organizations to meet their personal objectives.
This compels shareholders to initiate a corporate governance, which is a strategy aimed at controlling the operations of managers in organizations without necessitating their actual presence. Managers believe that performance-based on incentive contracts is not effective. Protagonists feel that organizations require some level of independence to capitalize on their efforts, money, and resources in improving organizational performance.