Ch.

5 Stakeholders

*EQ: Who are the major stakeholders interested in a

business and what are their roles, rights &
responsibly? How might a business consider
stakeholder interests in its decision making?
Objectives
 Explain what is meant by “stakeholder”
 Analyze and comment on the roles, rights and
responsibilities of key business stake holders
 Demonstrate an awareness of how and why a business
might consider stakeholder interests in its decision-
making – the benefits of being “socially responsible”
 Evaluate ways in which conflicting stakeholder
objectives might be recognized and responded to by
business
Stakeholders
 People or groups of people who can be
affected by, and therefore have an interest
in any action by an organization.
 Businesses have responsibilities to a wide
range of people not just shareholders.

Do not confuse the two terms “stakeholder” and

“Shareholder”. Stakeholder is a much broader term that
covers many groups, including of course, shareholders.
Who are the Stakeholders?
 Customers
 Suppliers
 Employees
 Local Community
 Government
 Shareholders
Stakeholders- Roles, rights and
responsibilities
REFER table 5.2 on page 54
Conflict arising from different
stakeholder objectives
Stakeholders are those organizations or people that have an interest in the
organization, these interests varied and for many reasons.
 They can be a source of potential conflict for the successful
accomplishment of the organizations strategy and goals.
 It is difficult for an organization to be committed to treating all stakeholders
equally, all stakeholders can be listened to, but at the same time it would
very difficult to consider their views equally, after all not everyone can be
pleased, the goals or personal objectives of stakeholders can enormously
conflict, so whatever the decision made by an organization there is always
going to be winners and losers.
 Often the winners will be those who have the greatest influence and
therefore bargaining power when it comes to an ultimate strategic decision
made by the organizations Board of Directors.
Examples of conflict that occur between an organisation and its stakeholders

 Differences between customer and shareholder aims e.g. customers

demand for better quality of product, but higher cost verses less profit and
return to shareholders.
 Differences between internal superior and sub-ordinates e.g. budget cost
control verses salary merit increases for staff.
 Differences between pressure groups and the organisation e.g. social
responsibility verses rational economic view that a firm exists to create
shareholder wealth e.g. higher cost of complying for social responsibility
will reduce profit and dividends.
 Differences between views of investors/shareholders and the Board of
Directors e.g. short-term or long-term view over investment decisions.
 Differences between the personal aims or goals of managers e.g. strong
visionary founders or an autocratic CEO of a Board of Directors, often
would influence heavily on key strategic decision making.
 Suppliers trying to maximise sales revenue by maximising price whilst
customers trying to minimise cost.
Business expansion versus higher short-
term profit:
 An objective of increasing the size and scale of a business might be
supported by managers, employees, suppliers and the local community –
largely for the extra jobs and sales that expansion would bring.

 However, an expansion is often associated with increased costs in the

short-term (e.g. extra marketing spending, new locations opened, more
production capacity added). This might result in lower overall profits in the
short-term, which may cause conflict with the business shareholders or
owners. In the longer-term, however, most business owners would be
pleased to support an expansion if it increases the overall value of the
business.
Job losses versus keeping jobs

 This has been a big issue for many businesses during the
economic downturn in 2008-2010. In order to reduce costs and
conserve cash, business managers have often made redundancies
amongst the workforce or introduced other measures like short-
time working to reduce wage costs. This will have been supported
by business owners and managers.

 However, it creates a potential conflict with stakeholders such as

employees (who are directly affected), the local community
(affected by local job losses) and suppliers (who suffer from a
reduction in business).
Saturday, December 9, 2023
What is CSR?
Corporate Social Responsibility
Why should companies be socially
responsible?

 CSR – requires businesses to consider the

interests of society in their activities and
decisions, beyond the legal requirements.
Corporate Social Responsibility
 There has been a lot of debate on this as critics
argue businesses are designed to make profit
also businesses only use it to make them look
better to society.
 In the short run it will mean reduced profits. What
about the long run?
 Should business be responsible for the ethics of
there suppliers? Or other governments?
Corporate Social Responsibility (CSR)
Pros Cons
 Shows that businesses  Distracts from the key
care about society not role of business activity
just $  Can be expensive
 Can lead to more  May reduce profits in
profitable opportunities short term
 Long-term greater  Could be viewed as a
marketing, public public relations stunt
relations, and employee
motivations benefits
Stakeholders
 Can a business satisfy all stakeholder groups?
 What would be the extra cost of meeting the
needs of each stakeholder group?
 There will always be a need to make a
compromise, as you cant satisfy everyone often
this may result in a loss of profit and these
decisions need to be made by management.
Impact on stakeholders of
changing business objectives
 Changes in business environment leads to
changes in objectives
 Different stakeholder groups may be
affected
 Consider the impact to each group:
 Employee, Owners, Shareholders, govt., etc…
Key Terms
 Stakeholders (p. 52)
 Stakeholders concept (p.52)
 Corporate Social Responsibility (p. 56)