Module 11: Stakeholders Flashcards
Name 5 categories of company stakeholder
PRINCIPAL
contribute capital and/or expect a return
AGENCY
paid by principals to perform a specific role on their behalf
CONTROLLING
supervise the principals or their agents
ADVISORY
advise the principal or their agents
INCIDENTAL
affected by the behaviour and actions of the principal or their agents
Describe the characteristics and interests of customers and policyholders
Customers and policyholders seek both
- good VALUE FOR MONEY and
- SECURITY of the company
in order that it provides the products and services expected.
Individually customers are very weak, but collectively can have greater power, particularly where supported by consumer advocacy groups, although this is more likely to happen after an adverse event.
Outline the role of shareholder service providers / proxy advisors
These institutions act on behalf of shareholders to:
- express considered views on the company eg on corporate governance, Board composition and remuneration
- (optionally) manage their proxy voting
What concerns might be raised about the role of proxy advisors
- POWER, BUT NO RESPONSIBILITY
they may influence (even control) a high proportion of voting rights but have no interest in the outcome of the vote - POTENTIAL FOR CONFLICT OF INTEREST
some firms provide consulting and other services to the companies on which they are making voting recommendations - “TICK-BOX” (quantitative) methodology
where a common template is applied to all firms, with little consideration being given to qualitative aspects of the individual circumstances of each company being assessed.
Describe the characteristics and roles of employees
Employees have a key role in ERM, which should be part of the day-to-day process throughout the whole organisation and not just in the “risk management” and internal audit functions of a company.
Contrast the risk perspectives of bank customers, building society account holders and insurance company policyholders
- Bank customers’ risk appetites are closely aligned with those of debtholders.
- Building society account holders’ risk appetites are more similar to those of shareholders.
- Insurance company policyholders may be just customers or also shareholders
4 Aspects of customer management
- acquiring new customers
- retaining customer loyalty
- knowing your customer
- effective crisis management
Discuss the importance of customer management:
acquiring new customers
- improvements in attracting and retaining the “right” customers can significantly increase the value of a business
- In practice, companies often have high customer turnover
- So, retention is particularly important - it is often much cheaper to retain an existing customer than recruit a new one.
- Long-term customers are particularly valuables as they tend to purchase larger quantities, be less price-sensitive and be more likely to recommend the company to other potential customers.
Discuss the importance of customer management:
retaining customer loyalty
- Dissatisfied customers will go elsewhere, but may also dissuade potential customers from purchasing.
- It is not sufficient merely to satisfy a customer - some satisfied customers may go elsewhere. A company needs to perform sufficiently well to retain the customer’s loyalty.
Discuss the importance of customer management:
knowing your customer
Customer surveys, feedback and data mining are useful ways of learning about a company’s customers and hence improve retention.
However, customer privacy is an important issue.
Discuss the importance of customer management:
effective crisis management
- A crisis generally damages a company’s reputation. However, if handled well, a crisis may actually enhance its reputation.
- A company should have contingency plans in place before a crisis occurs. When a crisis strikes, a company should:
- — not try to cover it up
- — act swiftly to resolve it
- — keep stakeholders informed
- — focus on the long-term future of the business, rather than minimising short-term costs
Describe the characteristics and roles of professional advisors
External auditors perform ANNUAL REVIEWS OF ACCOUNTS,
and this should include
- an assessment of the inherent risks and
- the ways in which those risks are being managed.
The auditors have a duty to report openly and honestly on the state of the company and on behalf of shareholders and regulators.
The effectiveness of the risk assessment may depend on the degree of disclosure and the extent to which issues are “hidden” by the management of a company.
Other professional advisors may be asked from time to time by management to investigate and report on specific matters, to provide assurance to the various stakeholders. They bring independents technical expertise and industry benchmarking information, although management do not have to act on their findings.
3 Key aspects of employee management
- RECRUITMENT
- Companies need to identify and then recruit the right individuals.
- Cash compensation is important, but so are other incentives and benefits. - RETENTION, PROMOTION AND TRAINING
- Employee turnover can be costly as skills and knowledge are lost. And employees go to work for a competitor, strengthening their position.
- Employee morale, retention and productivity can be improved by career development programmes and continual training.
- it is important that employees feel valued and that their achievements are recognised. - DISMISSAL AND RESIGNATIONS
- Large-scale redundancies adversely affect morale and can lead to voluntary resignations by other, perhaps highly-valued, employees.
- In some circumstances, a managed programme of dismissals can increase employee motivation.
- Exit interviews are a valuable way of finding out why employees are leaving.
Name 2 groups of employees, discussed in Sweeting, for which it is particularly important to align their interest with those of the shareholders
CENTRAL RISK FUNCTION
led by the Chief Risk Officer who assess the level of risk across the organisation and enforce risk management policies.
PRICING TEAMS
who are instrumental in ensuring the profitability of the company.
Describe the characteristics and roles of regulators
Regulators need to ensure that companies comply with the relevant regulatory standards and aim to protect the stability of markets.
Getting the right balance of regulation is vital: there need to be sufficient controls to protect other stakeholders, particularly customers and policyholders, but this must not be so restrictive that the market is constrained and cannot operate freely and efficiently
There is also a need to have an appropriate intervention process, which ensures that issues are dealt with in good time but also allows the opportunity for correction and improvement, thus hopefully avoiding closing down operations unnecessarily.
