Shareholders Approach to Corporate Governance ~ Exploring Corporate Governance

It is generally believed that the board of directors of a company should govern the company in the best interest of its shareholders, i.e. the owners of the company. This approach is lent credence and weight by the fact that all the directors are elected by and are answerable to shareholders. Shareholders Approach leads the board to formulate policies that aim at maximizing the shareholders’ value (through profits and improvement in share value) often at the expense of other stakeholders. A simple example may be taken here: a company can improve its profits by paying poor wages to its workers. In this situation, the interest of shareholders will be served at the expense of employees. In Pakistan where most companies are controlled by families or closed groups, Shareholders Approach is most prevalent.