1.4 Stakeholders
Learning Goal
I can explain what is meant by ‘stakeholder’ and differentiate between internal and external stakeholders
What are stakeholders?
The decisions a business makes can have far-reaching effects. There are many people, organizations, and groups that have a 'stake' in a business's success.
A stakeholder is an individual or group that has an interest in a company, organization, or business. Stakeholders can affect or be affected by the actions of a business, and they can exist both within and outside of a business. The view that businesses and their managers have responsibilities to a wide range of groups, not just shareholders is known as the stakeholder concept.
1.4 ESSENTIALS
KEY TERMS
stakeholder
stakeholder concept
Who are the stakeholders?
There are three main internal stakeholders, each with their own set of interests in the business’s activities. They include:
-
employees – employment security, wage levels, conditions of employment, participation in the business
-
managers – employment security, salary and benefits offered, responsibilities given
-
shareholders – annual dividends, share price, security of investment.
The external stakeholders and their interests include:
-
suppliers – speed of payment, level and regularity of orders, fairness of treatment
-
customers – value for money, product quality, service levels
-
government – jobs created, taxes paid, value of output produced, impact on wider society
-
banks and other creditors – security of their loans and the ability of the business to repay them
-
pressure groups that want to change a business’s policy towards pollution or testing of chemicals on animals
-
community action groups concerned about the local impact of business activity
-
competitors – fairness of competitive practices, strategic plans of the business.
Stakeholder Conflicts
Business decisions and activities can have both positive and negative effects on stakeholders, but it is rare for all stakeholders to be either positively or negatively affected by any one business activity. It is also possible for any one stakeholder group to experience both negative and positive effects from the same business decision. This is why conflicts of interest between stakeholder groups, with different objectives and interests, can arise.
CAN YOU...
explain what is meant by ‘stakeholder’ and differentiate between internal and external stakeholders?
Learning Goal
I can analyze and discuss business responsibilities to stakeholders.
Addressing Stakeholder Conflict
One way of reducing conflict is to compromise. For example, a business aiming to reduce costs may close one of its factories in stages rather than immediately to allow workers time to find other jobs but, as a result, business costs will fall more slowly. Plans to build a new chemical plant may have to be adapted to move the main site away from a housing estate to protect the local community, but the new site might be more expensive. The introduction of 24-hour flights at an airport – to the benefit of the airlines and passengers – may only be accepted if local residents are offered sound insulation in their homes, thereby increasing costs for the airport and airlines.
Senior management must establish its priorities in these situations. They need to decide who the most important stakeholders are in each case, what the extra cost of meeting the needs of each stakeholder group will be, and whether bad publicity resulting from failure to meet the interests of one group will lead to lost revenue – perhaps this will be greater than the cost savings of not satisfying this group.
CAN YOU...
analyze and comment on business responsibilities to stakeholders?