3-4-3-shareholders-versus-stakeholders

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Internal and external stakeholders

Stakeholders are individuals or groups that affect or are affected by the actions of a business
- A business needs to take into account the needs and interests of its stakeholders in order to operate successfully and ensure long-term success

Internal stakeholders are individuals or groups inside the business:
- Employees
- Managers and directors
- Business owners
External stakeholders are individuals or groups outside of a business:
- Customers
- Shareholders
- Creditors
- Suppliers
- The local community
- Local and national government
- Pressure groups

Stakeholder objectives

Stakeholders can have different objectives based on their different roles and perspectives
A business needs to take into account the needs and interests of its stakeholders in order to operate successfully and ensure long-term success

The different objectives of internal stakeholders

Stakeholder	Objective	Example
Owners	Owners may be sole traders, a partner in a business or a shareholder in a private limited company Owners are likely to work within the business as well as own it and so will be relying on the business to provide an income They will want all or a share of the profit and will want the business to succeed	The owner of a small building business may want it to provide a job and income: The owner may also have the aim of passing the business on to a family member on retirement
Employees	Employees are individuals who work for a company Their primary objective is to earn a living, have job security, be compensated fairly for their work and have a safe working environment	Google employees in California have some of the best working conditions in the world, with the company offering sleeping pods, games rooms and free specialty coffee all day
Management	Managers are individuals who are responsible for the day-to-day operations of a company Their primary objective is to meet the company’s goals and objectives They want to maximise profits and minimise costs while ensuring that the company operates efficiently	A manager of a McDonald’s outlet may want the restaurant to increase sales and reduce costs by improving efficiency

The different objectives of external stakeholders

Stakeholder	Objective	Example
Customers	Customers are individuals or businesses who purchase goods/services from a business Their primary objective is to receive high-quality products or services at a fair price Customers also want good customer service and a positive experience with the company	A customer of Nike may want the company to provide high-quality shoes at a reasonable price and to deal promptly with any customer concern issues
Shareholders	Shareholders are individuals or entities who own a portion of a company’s stock They invest in the company with the goal of making a profit Shareholders’ primary objective is to maximise their returns on investment They want the company to be profitable and generate a high return on their investment	A shareholder of Apple may want the company to release new products and increase sales to increase the value of their shares
Suppliers and creditors	Suppliers and creditors are likely to be one and the same Their primary objective is for the business to pay what it owes promptly and in full Suppliers often want to be able to establish long-term arrangements with customers to improve business stability	An egg supplier is likely to value a long-term supply contract with a leading supermarket, even if the price it receives for its eggs is low, because sales are guaranteed
The local community	The local community includes individuals and organisations that live or operate in the area where a business operates Their primary objective is for the business to have a positive impact on the community: This may include the business being environmentally responsible, providing jobs and contributing to local causes	Burnley Savings & Loans Ltd (Bank of Dave) donates all of its profits to local charities and good causes
Local and national government	The government is responsible for creating and enforcing laws and regulations that affect businesses Its primary objective is to promote the public good and protect the interests of citizens The government wants companies to operate within the law and contribute to the economy	The government may want a company to pay taxes, comply with environmental regulations and create jobs
Pressure groups	Pressure groups are organisations that seek to influence the policies and actions of businesses or governments Their primary objective is to promote a specific cause or agenda Pressure groups want companies to support their cause or take action on an issue	An animal rights group may want a clothing company to stop using animal products in their clothing

Stakeholder and shareholder influences

A business can take a shareholder approach or a stakeholder approach in its business strategy
A stakeholder approach focuses on interdependencies between stakeholder groups and takes steps to ensure that the benefits and drawbacks of its operations are shared equally among them
- This is likely to decrease profits as competing stakeholder needs may require solutions that involve increased costs (e.g. meeting employees’ needs by paying higher wages will increase salary costs)

The shareholder approach has often been used by large corporations, and it is focused on meeting the needs of shareholders, i.e.:
- Maximising profits in order to increase dividends and improve the share price

The “Stakeholder Approach”

Increased media scrutiny of business operations has meant that it has become good business practice to be socially responsible
- A business that adopts a stakeholder approach:
  - Recognises the impact it has on a range of stakeholder groups
  - Understands the impacts stakeholder groups can have on its operations
  - Communicates effectively with stakeholder groups
  - Tries to minimise the negative impacts of business operations on stakeholder groups where possible

The influence on stakeholders and by stakeholders

Examples of business influences on stakeholders	Examples of stakeholder influences on businesses
If a business experiences financial difficulties, shareholders may lose value in their investments and employees may face job losses or pay cuts If a business is profitable, shareholders may benefit from increased dividends and employees may receive bonuses or promotions Customers can be affected by business activity in terms of product availability, quality and pricing The local community can be impacted by the environmental and social impact of business operations, such as pollution or job creation The government can be affected by business activity in terms of tax revenue and regulatory compliance (following the laws)	Customers can influence product development and pricing through their purchasing decisions and feedback Employees can impact business activity through their productivity, skills and job satisfaction Shareholders can impact business activity through their investment decisions and demands for returns The local community can impact business activity through regulations and permits (from the local council) and social pressure Pressure groups can impact business activity by lobbying for changes in policy or boycotting products The government can impact business activity through taxes, regulations (laws) and subsidies

Examples of business influences on stakeholders

Examples of stakeholder influences on businesses

If a business experiences financial difficulties, shareholders may lose value in their investments and employees may face job losses or pay cuts
If a business is profitable, shareholders may benefit from increased dividends and employees may receive bonuses or promotions
Customers can be affected by business activity in terms of product availability, quality and pricing
The local community can be impacted by the environmental and social impact of business operations, such as pollution or job creation
The government can be affected by business activity in terms of tax revenue and regulatory compliance (following the laws)

Customers can influence product development and pricing through their purchasing decisions and feedback
Employees can impact business activity through their productivity, skills and job satisfaction
Shareholders can impact business activity through their investment decisions and demands for returns
The local community can impact business activity through regulations and permits (from the local council) and social pressure
Pressure groups can impact business activity by lobbying for changes in policy or boycotting products
The government can impact business activity through taxes, regulations (laws) and subsidies

The potential for conflict between stakeholders and shareholders

There is significant potential for conflict between different stakeholders within a business and the shareholders

Shareholder conflict	Explanation	Example
Shareholders and employees	Shareholders aim to maximise the return on their investment, which usually requires the business to make as much profit as possible Employees aim for higher wages and better conditions, which is likely to increase costs and reduce profits	In 2022, UK postal workers were engaged in strike action against their employer, Royal Mail, as they objected to a range of changes being made to their pay and working conditions that were intended to boost profits
Shareholders and customers	Customers aim for fair (or low) prices as well as good customer service As shareholders demand high profits to achieve maximum dividends, there is pressure on businesses to raise prices	Customers of UK energy suppliers were concerned that record-breaking shareholder dividends in 2022 occurred at the same time as consumer prices rose by more than 60%
Shareholders and management	Management aims to run the business effectively and ensure it pleases its shareholders Management may recommend the decision to retain profits to invest and grow the business rather than distribute the profits to shareholders as dividends	In early 2023, large numbers of shareholders of Boohoo voted against management plans to boost executive pay at the same time that dividends fell by 85%
Shareholders and governments	Governments want businesses to create good-quality jobs while complying with laws and tax contributions Shareholders are less interested in job creation and more interested in profit maximisation	Large corporations such as Amazon and Shell have been accused of tax avoidance through the offshoring of profit, reducing the amount of corporation tax paid to the UK government

Examiner Tips and Tricks

This topic is central to most of the other sections of the specification.

The impact on stakeholders of any type of business decision provides an excellent opportunity to develop chains of analysis and is also key to evaluation using MOPS (market, objectives, product, situation).

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