A stakeholder is anyone who affects the organisation or is affected by it. Good governance does not abolish conflicting interests; it manages them through declared rules.
1 Who are the stakeholders?
Shareholders
Capital and the return on it
Employees
Pay and job security
Customers
Product quality and promises kept
Lenders
The ability to repay
Suppliers
Continued business and payment on time
Regulators
Compliance with the law
Society
Environmental and social impact
The stakeholder circle: every party has a legitimate claim, and the board’s job is to balance them
2 Shareholders’ basic rights
A shareholder is a part-owner, not merely a financier, and so the law grants them rights that cannot be taken away. The most important are:
- The right to their share of the profits approved for distribution.
- The right to attend the general assembly and vote on its resolutions.
- The right to obtain the information needed to exercise their rights, accurately and in time.
- The right to dispose of their shares by sale or transfer in accordance with the law.
- The right to hold board members to account and to bring a liability claim in the event of a breach.
- The right to a share of the company’s assets on liquidation.
The general assembly
It is the highest authority in a joint stock company: it appoints and removes the board, approves the financial statements and distributions, and considers the board’s report and the external auditor’s report.
3 Protecting minority shareholders
Someone holding a small stake cannot influence a vote, so governance frameworks take care to protect them through practical means:
- Cumulative voting in board elections, so that minority shareholders can get a representative elected.
- Equal treatment of those in the same class, so that no information reaches a large holder before a small one.
- Regulating related party transactions so that value is not moved out of the company to an influential owner.
- Declared disclosure channels that everyone reaches at the same time.
4 When interests conflict
| Decision | Who benefits? | Who may be harmed? | The governance treatment |
|---|---|---|---|
| Distributing all profits in cash | Shareholders | The company (liquidity) and lenders | An approved distribution policy balancing return and growth |
| Cutting costs by reducing maintenance | Short-term profit | Customers, employees and reputation | Tying bonuses to multi-year performance rather than a single year |
| Funding expansion with a large loan | Growth and shareholders | Lenders (higher risk) | Board-approved gearing limits, disclosed |
A company posted good profits, and one major shareholder proposed distributing them in full. Finance pointed out that the company has loan obligations falling due within six months.
The treatment: the board presented two scenarios with the effect of each on liquidity, approved a partial distribution under the previously published dividend policy, and disclosed the reasons in the minutes of the general assembly. The shareholder received their entitlement, the company remained able to repay, and everyone knew the rule before the decision rather than after it.
A common mistake
Treating the shareholder’s interest as always being immediate profit. The shareholder’s real interest is sustainable value, which may conflict with distributing every riyal today.
Lesson summary
- A stakeholder is anyone who affects the organisation or is affected by it — not the shareholder alone.
- Shareholders have basic rights: profits, voting, information, disposal of shares, and accountability.
- The general assembly is the highest authority in a joint stock company.
- Minority shareholders have specific protections, including cumulative voting and equal treatment.
- Conflicting interests are managed through policies approved in advance, not improvised in the moment.
5 Test your understanding
Three quick questions
Pick the answer you believe is correct and you will see the result immediately.
1. Which body is the highest authority in a joint stock company?
The general assembly appoints and removes the board and approves the statements and distributions, so it is the company’s highest authority.
2. Material information reached major shareholders before anyone else. Which principle was breached?
Shareholders in the same class are treated equally, and that includes information reaching everyone at the same time.
3. What is the most appropriate governance mechanism for managing the tension between distribution and growth?
A written rule set before the event protects the decision from personal discretion and gives everyone a sense of fairness.