Lesson 6 of 7 · All lessons in this module
- Principal-agent relationships and agency costsVideo lesson
- Managers versus shareholders: five ways interests diverge
- Controlling versus minority shareholders, and shareholders versus creditors
- Reporting, shareholder meetings, activism and takeovers
- Creditor protections and board committees
- Employees, customers, suppliers and governments
- Risks of weak governance and benefits of strong governance
Lesson 6 of 7 · 11 min
Employees, customers, suppliers and governments
Beyond investors and the board, governance also works through labour law, unions and share plans for employees, contracts and social media for customers and suppliers, and laws, regulators and comply-or-explain codes from governments.
In short
- Employee relationship (human capital) management helps attract and retain talent and avoid legal and reputational risk.
- Employees are protected by labour laws, unions, employment contracts and, in some countries (e.g. Germany), board representation.
- An employee stock ownership plan (ESOP) grants shares or cash for service or performance, usually with vesting, to retain staff and align interests.
- Customers and suppliers are protected by contracts (products, prices, rights, guarantees, remedies for breach); social media gives stakeholders cheap, instant influence over reputation.
- Governments set laws and regulations, with heavier regulation in industries affecting the public (finance, health care, food) or national interest (defence).
- Corporate governance codes often work on a comply or explain basis; some countries use corporate law or listing rules instead.
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