Stakeholders
From WikiTextbook
All businesses will have an affect on or be affected by different groups of people. Those who have an interest in or an influence on the business are called stakeholders, examples of stakeholders and how they affect the business are:
- Customers – if customers are not happy they will no longer buy goods or services from the business;
- employees (including managers) – if the business is to perform well it must have a well motivated and happy workforce;
- owners and shareholders – if the business does not make a profit the owners may decide to withhold any future investment;
- the local community – will have to co-exist with the business. Any disputes with the local community may lead to either a fall in the sales or an increase in the costs of the business;
- the government – can affect the business by imposing taxes, providing subsidies or imposing new laws;
- pressure groups – will attempt to influence the decisions the business makes, e.g. regarding the environment or the treatment of its workers;
- suppliers – good relations with the suppliers will ensure that deliveries are made on time and at a fair price;
- financiers – will have the power to provide the business with money to expand in the future.
It is possible to differentiate between internal and external stakeholders. Internal stakeholders are those within the business; employees, managers, owners and shareholders. External stakeholders are those outside of the business; customers, the local community, government, pressure groups, suppliers and financiers.
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Shareholder and Stakeholder Approach
All stakeholders will have a view on how the business is to be operated. Managers have to decide which of these views it will listen to. Managers can adopt two approaches:
- Shareholder approach – this traditional approach suggests that the only responsibility managers have is to the owners, in other words, the shareholders. The managers should only be concerned with maximising the profits of the business which will improve the earnings of the owners.
- Stakeholder approach – this approach believes that managers should take into account the views of all the stakeholders of the business and not just the owners. It is hoped that by doing this the stakeholders will take an active interest in the well-being of the business. Examples include:
- by providing its customers with good value products and excellent after sales service they should return to the business again in the future;
- if the business provides the local community sports facilities it could lead to better relations and perhaps an increase in sales;
- by giving the suppliers a fair price and paying on time the business should receive its deliveries on time;
- by providing the workforce with a good wage the workers may work hard which could help the business achieve its objectives.
Conflicts of Interest
Conflicts can arise between the different stakeholders as each group may want different things from the business; these are described as conflicts of interest.
Conflicts of interest can arise between the business and its customers over a number of different issues. Price is a common area of conflict. Customers will want to pay as little as possible while the business will try and charge a high price in order to maximise their profits. Quality can be another area of conflict as the customers can often be dissatisfied with the good or service they have bought. The business will then have to decide whether to provide an exchange or refund in order to resolve the conflict.
The owners and managers of the business can often have a conflict of interest. Managers may choose to give themselves large pay rises, go on expensive foreign business trips or take long lunches at exclusive restaurants; this can lower the profit levels. This will put managers in conflict with the owners who will want to maximise the levels of profit. The conflict of interest between owners and managers is often called the divorce of ownership and control.
Businesses can come into conflict with the local community when its activities interfere with the lives of those living nearby. This can occur when the business causes pollution, traffic congestion or its looks spoil the area.
