stakeholders and types of organization

A stakeholder is an individual or group that affects or is affected by an organization

Stakeholders can be internal or external

Internal stakeholder is an individual or a group that affects or is affected by, an organization and is directly involved in the organization (owners, managers, employees)

External stakeholder is an individual or a group that affects, or is affected by an organization, but who is not directly involved in the organization (suppliers, bank, media)

INTERNAL STAKEHOLDERS

Managers- are individuals who run the organization. They are responsible both for setting aims and objectives and for making sure these aims and objectives are met. For managers to succeed they must make a comfortable environment for employees to work together and be able to meet those objectives.

Employees- individuals who work for the company. Employees are motivated by personal interests in competition, benefits, work security, and working conditions.

Shareholders- the owners of the company. They invest in businesses to receive a return on their investment. Their primary concern is profit for the company. They are generally not involved in the day-to-day running of a business. However, they appoint a board of directors, which chooses a CEO to run the company in the shareholders’ interest.

Internal stakeholders such as managers and employees can also be company shareholders.

EXTERNAL STAKEHOLDERS

Customers- include both individuals and other businesses that purchase the products of the organization/ they demand good service and quality products that are safe and are sold for reasonable prices. Customers might be the reason for a company to change its practices to be more ethical and sustainable

Suppliers- individuals or businesses that sell needed goods and services to the organization. They want to pay prices that are fair and reasonable for the inputs. They also try to maintain a stable relationship with the companies they supply to secure a reliable market for goods.

Governments- they regulate organizations to protect the public interest, enforce new laws, and reprimand businesses when necessary. Governments and partially local governments are dependent upon businesses to provide tax revenues and employment.

Labor unions- exist to protect the livelihoods and rights of employees, they are important stakeholders in many organizations. Unions usually represent employees in many different companies, so they have more resources for defending.

Banks and financial institutions- lend organizations money so they can invest and carry out their operations. Banks want to be sure that these loans are paid back, with interest, on time. They will closely monitor the organization’s financial health using final accounts.

Society- is affected by business behavior. When society’s interests are not met by businesses or defended by the government, local communities, pressure groups, and environmental organizations may step in to hold businesses accountable to communities and the environment.

STAKEHOLDER CONFLICT

They are independent and yet there can be tension between their interests

STAKEHOLDER ALIGNMENT

Stakeholder groups

POSSIBLE AREAS OF MUTUAL BENEFIT AND CONFLICT BETWEEN STAKEHOLDERS’ INTERESTS

Each stakeholder group has different interests in various activities of a business. In practice, it’s difficult to satisfy all stakeholder groups all of the time.

Businesses growth can create more job opportunities, thus creating positive impacts on the local community, such as creating more choices for customers. However, business expansion in the local community might create traffic congestion and cause more pollution which defies the interest of pressure groups.

To some extent, stakeholder conflict is always likely to exist, so to the varying interests of stakeholders must always be carefully managed. In order to deal with potential stakeholder conflict, businesses often use stakeholder mapping as a management tool to determine the key stakeholders

Stakeholder mapping includes organizing the various stakeholders of the business into a matrix, based on their degree of power and their level of interest in the business

The stakeholder groups with a high degree of power and interest are known as the key stakeholders

Potential solutions in handling stakeholder conflicts include:

-       Use a consolation service to align the conflicting interests of different stakeholder groups

-       Use an arbitrator to assess the conflicting interests, with the stakeholder groups agreeing to accept the judgment of the independent arbitrator

-       Hiring public relations (PR) consultants to communicate with the local community and to keep other stakeholders informed of the positive aspects of the organization’s operations or planned changes.

-       Improved communications with the various stakeholder groups

-       The use of financial rewards linked to employee productivity gains. It helps to motivate employees to perform more efficiently.

 TYPES OF ORGANIZATIONS (BUSINESS)

SOLE TRADERS

-       A commercial business owned by a single person. They can employ as many people as required but remains the only owner of the business.

-       It is run as an unincorporated business, there is no legal separation between the owner and the business itself.

-       A sole trader has unlimited liability and is responsible for any debt of the business which may be paid from their personal assets

-       Finance for the business is provided by the owner

-       Legally, a sole trader and the business are considered as one, a business is not a separate legal entity from the owner

-       The owner accepts all the risks running the business, include the failure of the business, but if the business succeeds the owner gets all the profit

Advantages:

-       A sole trader is quick to create, without any long and expensive set-up procedures

-       The owner has complete control and is free to make any decisions that are needed without consulting anyone

-       The owner enjoys tax advantages as a small business

-       Flexibility can introduce new trading activities or change what the business does with relative ease

Disadvantages:

-       Finance is limited as the main source is provided by the owner; access to external finance is difficult as the firm represents high risk, expansion gets more difficult

-       There is no one else to share ideas with, burdens or responsibilities

-       Added workload and stress from having to run the business alone, often results in having to work long hours

PARTNERSHIP

-       A commercial business organization owned by two or more people. In an ordinary partnership there are usually between 2 to 20 owners

-       At least one partner will have unlimited liability, although usual for all the partners to share responsibility for any losses made by the partnership

-       It is possible for some businesses like law firms to operate with more than 20 people in the partnership

Advantages:

-       With up to 20 owners, partners can raise more finance than sole traders

-       Partners can benefit from having mor ideas and expertise, along with shared workload and responsibilities

-       They can also benefit from specialization and the division of labor

-       Business affairs are kept private, so only the tax authorities need to know about the financial position of the partnership

Disadvantages:

-       As there is more than one owner there might be disagreements and conflict between partners, which can harm the firm

-       Any profits made must be shared

-       The departure of a partner can cause the organization to cease until a new agreement is legally created

-       In most partners have unlimited liability

COMPANIES/CORPORATIONS

-       A commercial business with limited liability and owned by their shareholders. Any profit must be distributed among shareholders

-       As incorporated business, there is a divorce of ownership and control, so shareholders have the benefit of limited liability

-       Limited liability protects shareholders who, in the event of the company going bankrupt, cannot loose more than the amount they invested in the company

To set up limited liability company, owners must submit two important documents:

The memorandum of Association- a relatively short document that records the name of the company, its registered business address, the amount of share capital and an outline of the company’s operations

The Articles of Association- a longer document that contains information about:

-       The details and duties of directors of the company

-       Shareholder’s voting rights

-       The transferability of shares

-       Details and procedures for the Annual General Meeting

-       How profits can be distributed

-       Procedures for winding the company

Private limited company

-       Smaller businesses than public limited companies

-       Shares can only be transferred (bought or sold) privately, and all shareholders must agree on the sale/transfer

-       Typically, shares are owned by family, relatives, and close friends

-       The shares cannot be advertised for sale or sold via stack exchange

Public limited companies

-       Share in public limited company can be bought by and sold to any member of the public or institution

-       The first time shares are sold to the public it is called initial public offer (IPO)

-       Public limited companies tend to be the largest type of business organization

FOR PROFIT SOCIAL ENTERPRICES

-       A social enterprise is an organization that uses commercial business practices to improve communities, the environment and human well-being rather than focusing on profits for external shareholders

-       Some enterprises are run for profit while others are non-profit organizations

-       Non-profit enterprises can earn a surplus from selling goods and services but reinvest this back into the business or local community

COOPERATIVES

-       Cooperatives are for-profit social enterprises owned and run by their members, such as employees, managers, and customers.

-       They strive to provide a service and to create value for their members, rather than a financial return for their member-owners

-       All members have voting rights irrespective of their position in the organization or their level of investment

-       All shareholders are expected to run the business

Advantages:

-       It is usually straightforward and inexpensive to set up a cooperative

-       All members are shareholders and must be active stakeholders of the cooperative, making it more likely to succeed

-       Members have limited liability

-       Members own and control the business

-       Governments often provide special financial assistance to help cooperatives

Disadvantages

-       It can be difficult to attract potential members/shareholders as cooperatives are not formed to generate a financial return on investment

-       Limited resources as the financial strength depends on the capital contributed by its members

-       Employees and managers may not be highly motivated due to the absence of financial rewards and benefits

NON-PROFIT SOCIAL ENTERPRISES

-       These are the organizations that generate revenue but act with community objectives at the core of their operations

-       A non-profit organization acts in a business-like way but does not distribute profits to its owners or shareholders, but instead uses the surplus to pursue its mission or vision

-       Ex: UNICEF, Human Rights Watch, Greenpeace

Advantages:

-       Exempt from paying income taxes and corporate taxes

-       The qualify for government grants and subsidies

-       They exist for the benefit of local communities and societies, which can assist fundraising and donations

Disadvantages:

-       In order to protect general public, there are strict restrictions and guidelines that must be followed, including the types of trading activities allowed

-       Earnings of workers are lower because it would seem unfair for salaries to be the same as for-profit firms

-       They often rely on donations and external support to survive

NON-GOVERNMENTAL ORGANIZATIONS (NGOs)

-       An NGO is a type of non-profit social enterprise that is neither part of government nor a traditional for-profit business but run by voluntary groups

-       They may be funded by governments, international organizations, charities, commercial businesses

-       They are run to promote a social cause. Ex: human rights, animal rights, environmental protection…