STAKEHOLDERS

INTERNAL STAKEHOLDERS
EXTERNAL STAKEHOLDERS
 AIMS AND OBJECTIVES

• By the end of this chapter you should be able to:

• Outline the interests of internal stakeholders
• Outline the interests of external stakeholders
• Discuss possible areas of mutual benefit and conflict between
stakeholders’ interests
 TRADITIONAL VS MODERN VIEW OF BUSINESS

SHAREHOLDER CONCEPT STAKEHOLDER CONCEPT

• Shareholders are the owners of the firm • There are many parties that have an
• Managers therefore have the duty to interest in the way the business operates
maximise shareholder value • Managers should therefore seek to satisfy
or meet the interest of these other
parties
Stakeholder: any individual, group or organisation with a direct interest in, and is
affected by, the activities and performance of a business. Understanding stakeholder
interests is important because they can influence the way businesses operate.
 STAKEHOLDERS

INTERNAL EXTERNAL
• These are people, groups, organisations that are
• These are people or groups who are part of outside the organisation but are affected by its
the organisation decisions
• Customers
• Employees
• Suppliers
• Managers and directors
• pressure groups
• Shareholders/stockholders
• Government
• Banks and other creditors
• competitors
 EMPLOYEES’ INTERESTS

EMPLOYEE’S INTERESTS BUSINESS’ RESPONSIBILITY TO EMPLOYEES

• Employees seek to improve the terms and
conditions of employment
• Higher salaries
• Job security
• Good working conditions
• Opportunities for professional
development
• Offer security in employment
• Provide training and development
• Offer good working conditions
• Employee empowerment
Are employees really important to an
organisation (see Charles Handy’s argument)?
If employee interests are not met, what's likely
to happen and how will this affect an
organisation?
 relationship?
Why is it important to maintain a good employee-employer
Further reading
EMPLOYEE’S INTERESTS • Why do employees go on strike?
• What is the role played by trade unions?
• What was the impact of the following strike
action:
• BMW strike (2013) South Africa
The impact of • Verizon strike (2016) USA

a strike action • St. Paul Park refinery strike (2021) USA

 SHAREHOLDERS’ INTERESTS

SHAREHOLDERS' INTERESTS FIRM’S RESPONSIBILITY TO

• Shareholders are owners of the company
• They expect the company to pay them
higher dividends; to see share prices rising
over time, security of investment etc
SHAREHOLDERS
• To operate the business in line with
existing company laws and
government regulations
• Present annual accounts to
shareholders
• Increase shareholder value over time

What's likely to happen if shareholder interests are not met and how will this
affect company performance?
 CUSTOMERS’ INTERESTS
CUSTOMERS’ INTERESTS
• Customers are the people or
organisations that buy a business’
products
• customers seek
• Guaranteed supplies
• Value for their money
• Safe and quality products
BUSINESS’ RESPONSIBILITY TO CUSTOMERS
• Assure customers of continuous
supplies, safe and quality products and
give them value for their money
• Not to exploit customers especially
the elderly and operate in line with the
consumer laws in the country
• Accurate advertising
If customers’ interests are not met,
how will this affect business
operations?

CUSTOMERS’ INTERESTS
“right or wrong, the
customer is always right”
(Marshall Field, 1834-1906)
The consumer is king
Further reading
company of your choice?
Consider the impact of a consumer boycott on any
• What are consumer rights?
• Why is customer care in a business important?
• Why is it important to listen to the opinions of
customers?
• How can business find out what customers want?
• What are customer suggestions schemes?
• What are consumer surveys?
• What do companies do with the information gathered
from consumer surveys?
• Why is customer care very important in organisations
such as banks, hotels and fast food restaurants?
 SUPPLIERS’ INTERESTS

BUSINESS’ RESPONSIBILITY TO
SUPPLIERS' INTERESTS SUPPLIERS
• Suppliers provide goods and support services • Pay fair prices and honour supplier’s
to the business invoices
• Suppliers are interested in
• Not to take advantage of weaker/ smaller
• being paid fair prices for their
suppliers
goods/services
• guaranteed business • Assure them of a long-term relationship
• payment on time
If suppliers' interests are not met, how will
the business’s operations be affected?
 and its caterers on the way the business operates and performs?
Analyse the possible impact of a dispute between Air Botswana
SUPPLIERS’ INTERESTS
• Suppliers provide a business with stocks of raw
materials, semi or finished goods as well as
commercial services
• Business may be able to receive quality products at
fair prices
Why is it important for a
• Supplier may extend preferential treatment like
business to have a good credit terms and discounts and this will increase
relationship with its suppliers? company’s cash flow position
 FURTHER READING

• Stimpson and smith (2015). Business Management for the IB diploma. (2nd edition) . Page
64. Table 1.4.1
• Hoang (2018). Business Management. (4th edition). pages 51-54
• Lomine, Muchena and Pierce (2014). Business Management . Pages 55-56
 CASE STUDY: PRADA

The luxury brand Prada is one of the most Progress questions

successful fashion business inn the world. It 1. Identify two external stakeholders in
specialises in clothing, handbags, shoes, Prada. [2 marks]
watches, perfumes and other fashion
2. Explain why these stakeholders would
accessories. The business was started in 1913
have an interest in the success of Prada.
by Mario Prada. Its sales are over $3 billion
[4 marks]
and it employs more than 12000 people.
 STAKEHOLDER CONFLICT
Can all stakeholders benefit
from business activity?
• Stakeholder conflict is the inability of an
organisation to meet all of its stakeholder
objectives simultaneously.
• Conflict between stakeholders is inevitable
because stakeholders have different interests
 Reaction by
Possible source of Local community
different
stakeholders to
conflict -workers will spend a wage increase
more money
A wage/salary increase for
employees
-business might
close down coz of
higher costs (UNE)

Managers
-employees become Pay rise for
happy
-pay rise will increase
employees
Shareholders
costs
-happy and -a pay rise reduces
-profit targets not
met motivated profits & return
on investment
-motivation has to
come from within
 Possible source of Local community Reaction by
conflict different
-Depressed real estate market
A 10% reduction in as many people might move
the workforce away from the town, selling stakeholders to
houses, or moving out of rental a reduction in
flats
The government -layoff of teachers as school the workforce
Increase support for the enrolments fall in the area
unemployed: insurance, -reduced sales and profits for
health, education. local businesses as people move
Reduction in tax revenue out, or have less income to
spend

Employees
Managers -Losing jobs makes them
unhappy
Happy: business
expenses fall and -job insecurity; remain Shareholders
productivity might coworkers fear for their Happy: business
rise. jobs expenses fall and
Managers might -demotivation; remaining productivity might
receive greater workers maybe pressured rise.
end of year into working harder to Shareholders might
bonuses make up for the smaller get higher dividends
workforce
Source of Reaction by different stakeholders
conflict owners shareholders employees management
Higher wage for sad because profit decreases
but maybe the motivation could
sad because profit and happy unsure wether this from of
employee motivation is the best
divident decreases
employees rise choice

Large bonuses for

directors
Lower prices to
customers
Investment in new happy because work might be
easier but hoping that this
machinery by expense does not affect their
employers profits

Higher dividends to
shareholders
Pressure groups
demand for corporates
to reduce profits
Demand for recycling
by local community

Fill in the Yellow Boxes

 Due date
22/03/2021

Source : Stimpson and Smith

(2015) Page 65
 POSSIBLE AREAS OF MUTUAL BENEFIT

Benefits to stakeholders if the business is performing well (rising profits, sales

revenue and market share
• Rising dividends
Shareholders
employees • Greater job security

customers • Lower prices due to economies of scale

suppliers • Increased future sales
 POSSIBLE AREAS OF MUTUAL BENEFIT

Benefits to stakeholders if the business is performing well (rising

profits, sales revenue and market share
local
community
government
competitors
lenders
 CASE STUDY: AMERICAN AIRLINES
• In 2013, American airlines merged with US
airways to form the American Airlines Group.
This created the largest airline in the world,
employing 118 000 people, with sales revenue
of over $40 billion and a profit of $7 billion.
They called it a ‘mega’ merger. In the same
year, the US government introduced stricter
environmental controls and the company has
also decided to outsource some of its
administrative functions to India, to reduce
costs.
• Adapted from Smith (2017) page 28
• Progress questions:
• 1. evaluate
the impact of the merger on
shareholders and employees of US airways? [10]
• 2. analyse the impact of stricter environmental laws
to the owners, the local community and the
government. [10]
• 3. evaluate the impact on three of the American
Airlines Group ‘s stakeholders of its decision to
outsource some of its administrative functions. [10]
 STAKEHOLDER
ANALYSIS
Managers should aim to satisfy the interests of all government
stakeholders.
Where stake holder interests are complicated, managers employees
should perform a stakeholder analysis to determine
whose interests that have to satisfy first.
How: prioritize or rank the interests of various
stakeholders by determining how ‘ close’ each Owners financiers
Pressure media
stakeholder is to decision making in the business. groups suppliers
Under this approach, owners and managers are central managers
to decision making, while suppliers, employees, financiers,
and consumers are further removed.
Most distant are government, pressure groups, the media consumers
and the local community.
Decision-makers try to satisfy those stakeholders closest Local community
to the center.

The comparative closeness of stakeholders to decision making

 STAKEHOLDER MAPPING: THE POWER-INTEREST MODEL

• Each stakeholder group is placed in a matrix Level of interest

allowing the managers to decide on likely strategies. high
low
interest power strategy
Group A minimal low These are rarely a problem for the Group A: Group B:
business. Ignore them. Devote limited low minimal effort keep informed

Degree of power
energy and attention to satisfying
their interests.
Group B high low Make them feel included. News
letters, events, and other ways of
conveying a sense of belonging are
important
Group C:
Group C low high Pivotal group; keep them satisfied. Group D:
They have power to influence other high keep satisfied
key players
groups. Flatter them and make them
feel important
Group D high high Most important group. Communicate
and consult with them before making The power-interest model (Johnson and Scholes)
major decision. Business should focus
on their needs before the rest to
avoid negative consequences