1.4 Stakeholders

Introduction

• Stakeholder concept: view that businesses and their managers have responsibilities to a wide range of groups, not just shareholders.

Who are the stakeholders?

• Internal stakeholders

  • Employees: group of people who work for the company, for remuneration.
  • Managers: people who manages the entire department. For example, sale manager, general manager, etc.
  • Shareholders: people who own shares in a company and therefore, get part of the company’s profits and the right to vote on how the company is controlled.

• External stakeholders

  • Customers are considered the king of business because they are the one who is going to consume the product.
  • Suppliers provide inputs to the organization like raw material, equipment, etc.
  • Government: a firm that is guided and controlled by government rules and regulations like it has to pay taxes and duties that are levied on the business.
  • Banks and other creditors provide funds to the organization.
  • Special interest groups such as:
  • Pressure groups that want to change business’s policy towards pollution or testing of chemicals on animals
  • Community action groups concerned about the local impact of business activity
  • Competitors: rivals who compete with the organization for resources and the market as well.

Stakeholders’ interests and business’s responsibilities to stakeholders

• $Employees$

  • Stakeholders’ interests
  • Employment security
  • Wage levels and benefits that compare well with similar jobs in other businesses
  • Good conditions of employment, e.g. health and safety
  • Some participation in decision-making within the business
  • Business’s responsibilities to stakeholders
  • Adhere to country’s laws that outline business responsibilities to workers - such laws are stricter in some countries than in others
  • Some businesses also provide training and job security, pay more than minimum wages, offer good working conditions, involve staff in some decision-making

• $Managers$

  • Stakeholders’ interests
  • Employment security
  • Salary and benefits that compare well to similar posts of responsibility in other businesses
  • Responsibilities offered and status of the post
  • Opportunity for profit sharing or share purchase scheme
  • Business’s responsibilities to stakeholders
  • Job security
  • Competitive salaries and other benefits
  • Opportunities for responsibility and career advancement

• $Shareholders$

  • Stakeholders’ interests
  • Annual dividends at a level at least comparable to similar businesses
  • Share price rising over time
  • Security of investment
  • Ability to sell shares when required
  • Business’s responsibilities to stakeholders
  • Incorporated businesses should be operated in accordance with company’s law
  • Annual accounts presented to shareholders
  • Strategies taken to increase shareholders’ value over time

• $Customers$

  • Stakeholders’ interests
  • Value for money
  • Product quality and safety
  • Guarantees
  • Service levels
  • Long-term rewards for loyalty
  • Business’s responsibilities to stakeholders
  • Not to break the laws on consumer protection and accurate advertising
  • Not taking advantage of vulnerable customers, such as the elderly, and not using high-pressure selling tactics
  • Giving customers assurances about quality, delivery dates, service levels and continued supplies of vital components and materials

• $Suppliers$

  • Stakeholders’ interests
  • Speed of payment
  • Level and regularity of orders
  • Fairness of treatment, e.g. not being exploited by a very large customer business
  • Business’s responsibilities to stakeholders
  • Establish effective two-way relationships that are of benefit to the business and suppliers
  • Avoid excessive pressure on smaller or weaker suppliers to cut prices
  • Pay fair prices and pay invoices promptly

• $Government$

  • Stakeholders’ interests
  • Creation of jobs and incomes that boost the economy
  • Taxes paid, e.g. profit tax
  • Value of output produced as this adds to GDP Impact on wider society, e.g. is production environmentally sustainable?
  • Business’s responsibilities to stakeholders
  • Pay profit tax
  • Keep accurate accounting records so true profit can be shown
  • Provide information to government as requested
  • Keep within all legal limits, e.g. on employment contracts and pollution levels

• $Banks and other creditors$

  • Stakeholders’ interests
  • Security of their loans and the ability of the business to repay them
  • Prompt payment of interest and capital owed by the business
  • Business’s responsibilities to stakeholders
  • Pay interest
  • Pay back capital owed

• $Special interest groups$

  • Stakeholders’ interests
  • Pressure groups - campaigning to achieve a change in business decisions/activities
  • Local community - encouraging business to act in community's interests and to avoid harmful production methods
  • Business’s responsibilities to stakeholders
  • Pressure groups - recognize genuine concern over business activity; business may respond by changing decisions/operations
  • Local community - avoid pollution and other damaging operations; support for local groups

• $Competitors$

  • Stakeholders’ interests
  • Fairness of competitive practices
  • Strategic plans of the business
  • Business’s responsibilities to stakeholders
  • To compete fairly and within the law
  • It’s not a responsibility of business to provide details of its strategic plans to competitors

Evaluating stakeholder conflict

• Methods to reduce stakeholder conflict:
  • Arbitration - to resolve industrial disputes between workers and managers
  • Worker participation - to improve communication, decision-making and reduce potential conflicts between workers and managers, e.g. works councils, employee directors
  • Profit-sharing schemes - to reduce conflict between workers and shareholders over the allocation of profits and to share the benefits of company success
  • Share-ownership schemes - to reduce conflict between workers, managers and shareholders.