Business Stakeholders

Stakeholder is any person or group with direct interest in the performance and activities
of a business.

• Internal stakeholders – these are members of the organization i.e. employees,

managers and shareholders
• External stakeholders –they do not form part of the business but have a direct
interest or involvement in the organization e.g. customers, suppliers, pressure
groups , competitors and the government.

Internal stakeholders are individuals or groups who are part of the organization. Examples include:

employees
managers
directors (executives), and
shareholders (the owners of the business)

Employees
Employees are an internal stakeholder group

Employees are workers within an organization. They have a vested interest in the business
organization that they work for. They can have a major impact on the organization and are directly
affected by the financial health of the organization. Their level of motivation and productivity have a
direct impact on the performance and prosperity of the business.

The interrelated interests of employees include:

Improved terms and conditions of employment

Better pay and bonuses
Equal opportunities
Improved job satisfaction
Improved job security, and
Wider opportunities for career progression

Managers

Managers are people hired to be responsible for overseeing certain functions, operations or
departments within an organization. Many businesses, especially large firms, tend to have three
broad levels of management:

● Senior management refers to the team of higher-ranking managers or directors that plan
and oversee the long-term aims and strategies of the organisation. They are responsible
for the middle managers.
● Middle management refers to the group of managers in charge of running individual
departments. They set departmental objectives (which are in line with the firm’s overall
aims) and are responsible for implementing strategies to achieve these goals. Middle
 managers are accountable to the senior management team and are responsible for their
departmental staff.
● Junior management (or supervisory management) refers to lower-ranking managers who
are in charge of monitoring and controlling day-to-day and routine tasks. They are
accountable to the middle managers and are responsible for their team of workers.

The interests of managers, irrespective of their rank or seniority in the organization, include:

Striving to improve operational efficiency, labour productivity and profits as these are all
measure of management performance.
Aiming to improve customer relations in order to maintain or improve the organization’s
competitiveness.
Aiming to improve their own salaries, bonuses and other fringe benefits - just like all employees
of the organization (see Unit 2.4 Motivation and demotivation).

Directors

Directors (or executives) are the group of senior managers who are legally responsible for the
overall running of a company on behalf of their shareholders (the legal co-owners of the company).
In a large company, there is likely to be directors responsible for each key functional area of an
organization: marketing, human resource management, finance and accounts, plus operations
management.

There are two main types of directors:

● Executive directors work full-time at the organization and make key strategic decisions.
● Non-executive directors do not work at the organization but are consultants used for their
particular expertise. They advise the Board of Directors on corporate strategy.

Directors must also keep company records and report any changes to the authorities. Other
responsibilities of directors include:

Advising and supporting the CEO

Filing company annual accounts
 Target setting and devising long term strategic plans
Establishing organizational policies and codes of conduct / practice; which in turn means
shaping the corporate culture
Monitoring and controlling the organization’s overall activities and financial results
identifying and recording people with significant control (PSC) in the company. Most PSCs are
likely to be people who hold:
1. more than 25% of shares in the company
2. more than 25% of voting rights in the company
3. the right to appoint or remove the majority of the Board of Directors.

Directors also need to be aware that the information of all PSCs is available to the general
public, apart from their home address and date of birth.

The interests of directors (or executives) include:

They have similar interests to managers, but are also likely to strive to improve their share
ownership rights and performance related bonuses.
They are concerned with the organization’s return on investment for their shareholders.
They strive to improve the competitiveness of the organization as measured by market share
and market growth.

The CEO is one of the Directors in a company

Shareholders (stockholders)

Shareholders (or stockholders) are people or other organizations that buy shares in the company.
They own a part of the business. The interests of shareholders (owners) of a limited liability
company include:

They have rights to a share of any profits that the company earns (dividend payments);
shareholders expect regular payment of dividends.
They also have voting rights (based on the number of shares they own) on how the company
should be run.
 As co-owners of the limited liability company, shareholders expect the business to earn a certain
(financial) return on their investment.

The interests of external stakeholders (AO2)

External stakeholders are people or organizations not part of the business but have a direct
interest in its decisions, actions and performance. Examples of external stakeholder groups include:

Customers
Competitors
Financiers
Labour unions (trade unions)
Pressure groups
Suppliers
The government, and
The local community

Customers

“There is only one boss. The customer. And he can fire everybody in the company from the
chairman on down, simply by spending his money somewhere else." ~ Sam Walton
Customers are the firm’s clients who pay for the goods and/or services of the business. The
interests of customers include:

Customers strive for cheaper and more competitive prices for the goods and services they
purchase.
They demand products that are of an acceptable quality for the price they pay.
They want products that are safe and fit for their purpose.
Customer service is paramount, such as the provision of after-sales support.
Overall, customers want value for money.

Customers are an external stakeholder group

Competitors

Competitors are the organization’s rival businesses competing in the same industry. The interests
of competitors (or rivals) include:

Competitors are interested in the organization’s operations, such as its product range and
pricing strategies.
Competitors are also interested in the finances of the business in question, such as its final
accounts (see Unit 3.4) and how competitive its remuneration package is (such as salaries
and fringe benefits offered to its employees).
Competitors also have a vested interest in the behaviour and operations of the business in
question as this can affect the reputation and sales of the industry as a whole.
It is not uncommon for rival companies to hold shares in the business in question. For example,
Cathay Pacific Airways (CPA) is partially owned by Air China (which holds 30% of the
shares in Hong Kong's flagship carrier) and Qatar Airways (which owns 9.4% of the shares
in CPA). Porsche owns more than 31% of the shares in Audi (which itself is part of the
Volkswagen Group). Sinochem, the Beijing-controlled chemical giant that also produces
high-end tyres, is Pirelli's biggest shareholder, with a 37% stake in the Milan-based
multinational tyre manufacturer.
 Rivals are also interested in benchmark data to measure their own performance, such as sales
turnover, market share, and financial ratio analysis.

Competitors are external stakeholders

Case Study 1 - Nissan and Renault alliance

In 1999, Japanese carmaker Nissan was on the brink of bankruptcy. French carmaker Renault
stepped in to rescue Nissan by forming an agreement that involved Renault having more than a 43%
stake Nissan. At the same time, Nissan would hold a 15% stake in Renault.

Twenty four years later, the two companies came to a new agreement that Renault would cut its
stake in Japan's Nissan to 15%, the same size as Nissan's stake in its French counterpart. Nissan
also has 15% stake in Renault's electric vehicle strategic business unit, Ampere.

Financiers

Financiers (or financial lenders) are commercial banks, investors, insurance companies, and other
financial backers that provide finance for a business (see Unit 3.2). The interests of financiers as an
external stakeholder group include the following:
 They are interested in the financial health of an organization in order to judge the ability of the
business to repay its debts and to generate profits.
They expect regular and prompt repayment of the money lent to the business.
They also demand a positive yield (competitive financial return) on their investment funds.

Labour unions (trade unions)

A labour union is an organization that aims to protect the interests of its worker members. In
particular, it focuses on the terms and conditions of employment, such as workers’ pay and benefits.
A worker becomes a member of a trade union by paying a subscription fee, usually on a yearly
basis. The membership fees help to pay for the administrative and legal expenses of operating the
trade union.

Labour unions originated in the 19th century in the UK and the USA. People often worked in very
poor conditions, so trade unions were created to bargain for better terms and working environments
for their members. Labour unions are organizations recognized as legal representatives of workers,
thereby serve to act in the best interest of their members. They also lobby the government to pass
laws and regulations that protect workers, such as statutory employment rights.

There is often conflict between the interests of employees and employers. For example, an increase
in pay and benefits, along with pressures to reduce working hours, will improve the terms of
employment for employees but increase costs for employers.

Possible areas of mutual benefit between stakeholders

Modern management thinking suggest that there are mutual benefits in simultaneously
meeting the competing needs of different stakeholders. For example, addressing the
needs of both employees and managers can lead to a highly motivated and productive
work force with low rates of absenteeism and staff turnover. This can lead to improved
customer relations, corporate image, market share and profits. As a result shareholders
will be pleased. Greeter output might lead to more employment in the local community.

Possible areas of conflict between stakeholders

As different stakeholder groups have varying interest in a business, it is likely that a
conflict will arise.ie situations where people are in disagreement due to differences in
their opinions thus creating friction between stakeholders in the organization.
Conflict arises because a business cannot simultaneously meet the needs of all
stakeholders
Examples of conflicts
Shareholders vs employees
Shareholders want more profits this may came about by cutting staff benefits, this will
obviously upset the employees.
Suppliers vs managers
Managers may want to delay paying suppliers so that the business cash flow may
improve, this will upset suppliers who want prompt payments
Please remember that when discussing this type of question, don’t say e.g.
business vs customers because business is not a stakeholder.
How to solve stakeholder conflicts
• Arbitration
• Worker participation in decision making
• Implementing Profit sharing schemes
• Share ownership schemes-allow workers to own share in the firm.

Unit 1.4 - Glossary of Key terms: Stakeholders

Key term Definition

Arbitration
Method of stakeholder conflict resolution with all
stakeholder groups in conflict agreeing to accept the
decision or judgment of the independent arbitrator.

Competitors
These are the firm’s rivals, which operate in the same
industry and contest for the same customers.
Conciliation
Method of stakeholder conflict resolution which aims to
align the incompatible interests of different stakeholder
groups by helping different parties to better understand
each other’s interests.

Conflict
This refers to the mutually exclusive and incompatible
interests of different stakeholder groups. If this is not
managed, it often leads to protracted disagreements,
disputes, and arguments in the workplace.

Customers
These are the firm’s clients, individuals and other
businesses, who purchase the organization’s goods
and/or services. Their interests include competitive
prices, fit-for-purpose products and overall value for
money.

Directors
The group of senior managers who run a company on
behalf of the owners of the company.

Employees
These are the workers within an organization. Their
interests include: job security, a competitive
remuneration package, a safe working environment,
and opportunities for career development.

External stakeholders
Stakeholder groups that are not directly involved in the
running of an organization but have a direct interest in
its operations.

Financiers
Financial institutions (such as banks) and individual
investors who provide source of finance for businesses.
They are interested in the organization’s ability to
generate profits and to repay debts.
Government
The ruling authority within a state or nation. The
government, as an external stakeholder, is interested in
businesses complying with the laws of the country,
such as employment legislation.

Internal stakeholders
These stakeholders are part of the organization, such
as employees, managers, directors, and shareholders.

Local community
The general public and local businesses that have a
direct interest in the activities of the organization. They
are interested in the firm’s ability to create jobs and to
operate in a socially responsible way.

Managers
The people hired to be responsible for overseeing
certain functions, operations, or departments within an
organization.

Pressure groups
Individuals who come together or organizations that are
set up for a common concern. They aim to influence
government and public opinion in order to create the
desired social change.

Shareholders
(stockholders) The people or organizations that have shares in a
company. Their interest is financial, i.e. regular
dividends and a higher share price.

Stakeholder conflict
Refers to differences in the varying needs,
perspectives, and priorities of the numerous
stakeholder groups of an organization.

Stakeholder mapping
A business management model used to determine the
relative interest of stakeholders and their level of
 influence (or power) on an organization.

Stakeholders
The individuals, organizations, or groups with a vested
interest in the actions and outcomes of a specific
organization. They are directly affected by the
performance of the business.

Suppliers
Organizations that provide the goods and support
services for other businesses. Their interests include
receiving regular orders and receiving payments from
their business customers on time.

CLASS QUIZ
To test your understanding of this topic (Stakeholders), answer the following true or false questions.

No. Statement True or

False?

1. Any individual or organization affected by the activities and

performance of a business is known as a stakeholder.

2. Stakeholders can be both internal and external to a business.

3. Stakeholder mapping is a tool that involves organizing stakeholders in

a matrix based on their degree of ownership and level of interest in the
business.

4. Trainee managers are an external stakeholder group of a business.

5. The local community is an example of an external stakeholder group

for a business.

6. A government's main concerns in business affairs are tax revenues,

employment opportunities, and economic growth.

7. When managing stakeholders’ interests, successful businesses strive

to ensure the interests of most stakeholders are satisfied most of the
time.

8. Most customers of a business would be highly concerned with how

much profit a business earns.

9. When managing stakeholder interests, it tends to be more complicated

for larger businesses than smaller ones.

10. The main concern of pressure groups is how an organization’s

business activities will impact the cause that they support.

11. According to stakeholder mapping, stakeholders with a high level of

interest and high degree of power are the most important to the
business.

12. Suppliers are not stakeholders because they have no direct interest in
how a business performs.

13. Stakeholders are not necessarily the owners of a business.

14. The main concern or interest of shareholders of a business is profit as
this will impact the amount of dividend payments and the value of the
company's shares.

15. Managers are people hired to be responsible for overseeing certain

functions, operations, or departments within an organization.

16. Directors are the senior executives who are legally responsible for the
overall running of a company on behalf of their shareholders (the legal
co-owners of the company).

17. A competitor is interested in what rivals are doing as it may impact on

their sales revenue and profits.

18. The local community’s main concern as a stakeholder group is how a

business’s operations will impact on their lifestyle, such as
employment and environment.

19. A labour union exists to protect the interests of its worker members,
such as workers’ pay and conditions of employment.

20. Stakeholder conflict refers to the mutually exclusive and incompatible

interests of different stakeholder groups of a business organization.