St - Reaction Paper 1

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The Stakeholder versus the Stockholder

Stockholders have a direct interest in the well being of a company. At annual meetings public companies ask these stockholders to vote on the board, company stock and equity changes, executive pay, and other shareholder proposals. One would assume the stockholder would want to vote in a manner that would best position the company for maximum potential growth. Many stockholders in the interest of time, especially larger funds and investment groups, take the advice of proxy advisory services, a stakeholder of the company, in order to vote. An example of the affects of this can be highlighted when comparing the stakeholders versus the stockholders at Lockheed Martin and Northrop Grumman.

In the current American corporate system stakeholders have power over public companies’ decisions and strategies. One such group of stakeholders is proxy advisory groups. According to a report released by Fredrick W. Cook, the most recognizably influential group, Instructional Shareholder Services (ISS), has about a 20 percent influence on investor voting decsions when it comes to the advisory vote on pay proposals for the Russell 3000 and the second most influential group, Glass Lewis, affects five to 10 percent of the vote outcome (Hilburn, 2011). Therefore, companies have incentive to follow what this stakeholder deems as responsible governance. Stockholders are responsible for actively voting, but are they voting blindly by others’ recommendations? ISS writes in their preliminary postseason report, “‘say on pay’ votes increased investors’ workloads, but spurred greater engagement by companies and prompted some firms to make late changes to their pay practices” (Allen, Delgado, Dugan, Komonjoh, Mathiasen, & Mell, 2011). The stakeholder has pushed an agenda, causing companies to reach out to stockholders and change pay practices in hopes of pleasing both stakeholders and stockholders. One example of this is Lockheed...
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