The Ownership of Shares

Stock Ownership and Employee Benefits

Stock ownership is a process used by various companies to ensure that employees benefit from acquiring company stock and property. Equity ownership aims to increase the value of a company’s stock by enabling employees (stakeholders) to share in the company’s success. It is clear that holding companies attract investors and retain employees. This is because owning shares guarantees a bright future and further development as the company will not go bankrupt. There are approximately 7,000 employee stock ownership plans in the U.S.A and other 13.5 million employees that are covered by this plan in different companies where they are employed (Luo & Subrahmanyam, 2017).

Mitigating Agency Problems through Share Ownership

Ownership of shares mitigates agency problems which might affect the company or individuals in the business. I will use several examples to support this argument for the reader to have a good and clear understanding. Agency problems are the conflict which arises when there is a misunderstanding between the manager and the employee or where one party is expected to act in another party’s best interest. Sometimes it becomes impossible for them to work without the agency problem though it can be minimized by ensuring that the managers are motivated to work in the shareholders’ best interest (Gul, 2017). There are different strategies which can be employed to reduce these problems which include: principal-agent relationship, the use of incentives among many others. Though, the best way is through the ownership of the shares because it makes all the people equal.

Shareholders’ Power to Elect Leaders

Shareholders in many companies have the right to vote for their leaders. This gives them the power to elect the best person who will work for the interest of the people and not only for his/her interest. The manager who is chosen by the majority must be submissive to them because they are the owners of the business and they have the power to suck him/her anytime. This will reduce the agency problem in a significant way. The energy giant Enron is an example of a company that collapsed due to poor managers and directors who sold the stock at higher prices thus leaving the company to be bankrupt (Sadler et al., 2017). The owners of the shares have been given the power to control all the activities that the company is involved in. This enhances a good relationship between the managers and the shareholders because their decisions are crucial when it comes to the performance of the different activities that the company might be involved with. As long as you hold shares in a specific industry, you have the power to control the performance of the business, and thus you cannot be manipulated.

Shareholders’ Role in Supervising Operations

Shareholders play indirect and direct vital role in supervising the operations of the company. They ensure that the business is running smoothly and in case of any problem, they are the first people to be informed so that they can come up with solutions. Another example of a company that collapsed due to poor operations is the Boeing Buyback company where the shareholders (employees) purchased the company stock shares instead of using it to make investments. Having ownership of the shares also ensures good governance through the development of rules and policy which are supposed to be adhered to strictly by all the members (Tahoun, 2014). These standards define the role of each person starting from the board of directors, managers, and other departments. Through their governance, they outline the punishments which are to be given to the lawbreakers. This ensures that all the members are active, and thus the growth of the company.

References

Gul, F. A., & Ng, A. C. (2017). Agency Costs of Free Cash Flows and Investments in Business Sustainability.

Luo, J., & Subrahmanyam, A. (2017). Financial market equilibrium when information is asymmetric and stock ownership is a consumption good.

R. Sadler, T., R. Sadler, T., Sanders, S., & Sanders, S. (2016). The 2011-2021 NBA collective bargaining agreement: Asymmetric information, bargaining power and the principal agency problem. Managerial Finance, 42(9), 891-901.

Tahoun, A. (2014). The role of stock ownership by US members of Congress on the market for political favors. Journal of Financial Economics, 111(1), 86-110.