A firm’s owners and shareholders often have contradictory interests; while they both want the company to develop and grow, they see this process differently. Owners are interested in realizing their ideas and visions in the firm, stimulating its active growth. Shareholders, on the contrary, want a stable income from the company, without its rapid changes up or down. In general, owners and managers are directed toward short-term profit and want fast growth, while shareholders encourage stability, continuous income, and social responsibility.
The social area is the first conflict zone between owners and shareholders. Owners and managers are less likely to pay attention to social preferences and regulations, while shareholders usually want the company to engage in social activities (Hinvest et al., 2018). Managers and owners are centered on profits and conquering the market, and their actions are directed by this perspective (Gormley & Matsa, 2016). Taxes are another field of conflict: managers are more prone to avoid taxes to maximize their profits, while shareholders usually are directed on a long-term income that is much less taxed (Bauer et al., 2017). According to the research of Ramachandran et al. (2020), independent directors in the firm’s governance leads to better relations with shareholders. Thus, one possible agency conflict is the different points of view on the company’s future and development.
A particular case of this conflict is family-owned firms, where there are several lines of conflict. The family owners, who directly rule the company, and family shareholders, who have their shares, often have conflicts of interest (Blanco-Mazagatos et al., 2016). The power in such firms is usually concentrated among several family members and influenced by family traditions (Martin et al., 2017). Therefore, there is a misunderstanding between shareholders outside the family, who do not know family traditions, and those inside the family. It makes communication about the company’s values much harder.
Thus, different perspectives are the core of the conflict between the company’s shareholders and owners. They have the same interests: the firm’s growth and success, but they see it differently. For owners and managers, it means rapid growth, competition, and conquering. For shareholders, stable income and social responsibilities are the most crucial part. In that way, it is essential to manage a dialogue between them, to ensure that both perspectives work for the company’s benefit.
References
Bauer, T., Kourouxous, T., & Krenn, P. (2017). Taxation and agency conflicts between firm owners and managers: A review. Business Research, 11(1), 33–76. Web.
Blanco-Mazagatos, V., de Quevedo-Puente, E., & Delgado-García, J. B. (2016). How agency conflict between family managers and family owners affects performance in wholly family-owned firms: A generational perspective. Journal of Family Business Strategy, 7(3), 167–177. Web.
Gormley, T. A., & Matsa, D. A. (2016). Playing it safe? Managerial preferences, risk, and agency conflicts. SSRN Electronic Journal. Published. Web.
Hinvest, N., Fairchild, R. J., & Elkholy, H. (2018). The conflict between economic and social preferences: Social investing, social enterprise, Mind-Sets and nudges. SSRN Electronic Journal. Published. Web.
Martin, G., Gómez–Mejía, L. R., Berrone, P., & Makri, M. (2017). Conflict between controlling family owners and minority shareholders: Much ado about nothing? Entrepreneurship Theory and Practice, 41(6), 999–1027. Web.
Ramachandran, J., Alam, N., & Goh, C. E. (2020). A win-win situation for both managers and shareholders. Managerial Finance, 46(8), 977–1000. Web.