Business (9609) | Stakeholders in a business

🚀 Chapter 1.5: Stakeholders in a Business – Who Cares What You Do?

Hello and welcome to this critical chapter! When a business makes a decision—like building a new factory or raising prices—it doesn't happen in a vacuum. Lots of people are affected!

This topic teaches you to look at a business not just from the owner’s perspective, but from the viewpoint of everyone connected to it. Understanding these groups, known as stakeholders, is essential for top-level analysis and evaluation in your exams!

What Exactly is a Stakeholder?

A Stakeholder is an individual or group with a direct or indirect interest in the activities and performance of a business. They can affect or be affected by the business's decisions.

Analogy: Think of a school football team. The players are the key stakeholders, but so are the coach, the parents, the referee, and even the local newspaper reporting the scores. All have an interest, but their interests and influence vary greatly!

Section 1: Internal vs. External Stakeholders (1.5.1)

We classify stakeholders into two main groups based on their relationship with the business.

1. Internal Stakeholders

These groups are inside the business and are directly involved in its operations and decision-making.

Key Internal Stakeholder Groups

1. Owners/Shareholders:

• Role: Provide capital; legally own the company (especially in limited companies).
• Right: To receive dividends (a share of profits) and attend Annual General Meetings (AGMs) to vote on major decisions.
• Responsibility: To act lawfully and ethically (e.g., not vote for highly unethical practices just for profit).
• Primary Aim: Maximise profit, dividends, and share price growth.

2. Managers/Directors:

• Role: Run the business day-to-day; make strategic and tactical decisions.
• Right: To receive a salary and bonuses, and to be consulted on strategy.
• Responsibility: To manage resources efficiently and meet set objectives (fiduciary duty to shareholders).
• Primary Aim: High salaries, job security, power, status, and meeting operational targets.

3. Employees/Workforce:

• Role: Carry out tasks, produce goods or services.
• Right: To fair wages, safe working conditions, and reasonable working hours.
• Responsibility: To perform duties diligently and adhere to company rules.
• Primary Aim: High wages, job security, good working conditions, opportunities for promotion/training.

Quick Takeaway (Internal): Internal stakeholders are focused on the business's immediate survival, success, and how their personal rewards (pay, dividends, status) are affected.

2. External Stakeholders

These groups are outside the business but still have a significant interest in its actions.

Key External Stakeholder Groups

1. Customers:

• Role: Purchase the goods and services.
• Right: To safe, high-quality products, and accurate information (e.g., clear pricing).
• Primary Aim: High quality, value for money, reliable supply, and excellent customer service.

2. Suppliers:

• Role: Provide the business with raw materials, components, or services.
• Right: To be paid promptly and fairly for goods delivered.
• Primary Aim: Continued, regular orders, profitable trade, and quick payment.

3. Government (Local and Central):

• Role: Legislate, regulate, collect taxes, and provide infrastructure.
• Right: To collect taxes and ensure the business complies with all laws (health & safety, environmental).
• Primary Aim: Job creation, high tax revenue, compliance with laws, contributing positively to GDP.

4. Local Community:

• Role: Live and work near the business operations.
• Right: To live in an environment free from excessive pollution, noise, or traffic congestion caused by the business.
• Primary Aim: Job opportunities, minimal pollution/noise, Corporate Social Responsibility (CSR) initiatives.

5. Creditors/Lenders (e.g., Banks):

• Role: Provide loans or credit.
• Right: To receive interest payments and eventual repayment of the principal loan amount.
• Primary Aim: Stability and profitability of the business to ensure loans are repaid on time.

Quick Takeaway (External): External stakeholders are concerned with how the business operates within society and its market, often seeking stability, compliance, and positive social impacts.

Section 2: Stakeholder Influence and Conflict (1.5.2)

1. The Impact of Business Decisions on Stakeholders

Every major business decision has a ripple effect. When analysing a case study, you must consider these impacts.

Example: Decision to Outsource Production (Move jobs abroad)

• Impact on Employees: Negative. Loss of jobs (redundancy), reduced morale for those remaining.
• Impact on Owners/Shareholders: Positive. Reduced costs usually leads to higher profits and dividends.
• Impact on Local Community: Negative. Increased unemployment, reduced local spending.
• Impact on Government: Negative. Lower tax revenue (less income tax paid by local workers).

The business needs to anticipate the reactions to its decisions. For example, employee redundancy might lead to negative publicity, strikes, or lower productivity from those who remain, which ultimately harms shareholder returns.

2. Accountability to Stakeholders

Accountability means being responsible for and justifying one's actions, especially to those who are affected by them.

How and why a business needs to be accountable:

1. Legal Requirement: Businesses must be accountable to the government and shareholders (e.g., producing audited annual financial reports). Failure to comply can result in fines or closure.
2. Ethical Duty: They owe a responsibility to the community and employees (e.g., ensuring ethical sourcing or minimal environmental impact). This links closely to Corporate Social Responsibility (CSR).
3. Reputation and Profit: If a business is not accountable to customers (e.g., selling faulty products) or the community (e.g., polluting), its reputation suffers. This can lead to consumer boycotts and falling sales, directly affecting profits.

3. How Stakeholder Aims Influence Decisions

Stakeholders don't just react; they actively try to influence the business to align its decisions with their aims.

• Example: If a Pressure Group (external stakeholder) campaigns strongly against the use of plastic packaging, the business may decide to spend money on Research & Development (R&D) to find sustainable packaging solutions. (This decision is influenced by the aim of the pressure group to protect the environment).
• Example: If the Managers (internal stakeholder) push for a high growth strategy, the business may decide to retain profits rather than paying high dividends, affecting Shareholders.

4. Conflict of Aims and Objectives

Don't worry if this seems tricky at first—conflict is the most commonly tested part of this topic!

Since different stakeholders want different things, their objectives often clash. Management must try to find a compromise (a way to satisfy all parties partially) or prioritise the most powerful group.

Common Examples of Stakeholder Conflict

1. Shareholders vs. Employees:

• Shareholders want maximum profit (achieved by keeping costs, like wages, low).
• Employees want high wages and better benefits (which increase costs).
• Conflict arises when: A business cuts wages to increase profit margins.

2. Owners/Managers vs. Local Community:

• Owners want to reduce operational costs (e.g., disposing of waste cheaply, perhaps polluting).
• Community wants a clean, safe environment (requires costly, environmentally friendly disposal methods).
• Conflict arises when: The business expands the factory, creating local jobs (positive), but also increasing traffic and noise (negative).

3. Customers vs. Owners:

• Customers want lower prices and high quality.
• Owners want higher prices and reduced costs to increase profit.
• Conflict arises when: Prices are increased or quality is reduced to improve the business’s profit margin.

How Changing Business Objectives Affects Stakeholders

A shift in the business's main objective (referencing Chapter 1.4) often shifts the priority given to different stakeholders:

• Shift from Survival to Profit Maximisation: The emphasis shifts entirely towards Shareholders. Decisions may become riskier, or costs (like employee benefits) may be cut. Employees become less important than investors.
• Shift from Profit Maximisation to CSR/Environmental Goals: The business starts focusing more on the Community and Government (compliance). This might involve spending more money on pollution control or ethical materials, which could temporarily reduce short-term profits for Shareholders.

5. Measuring Stakeholder Importance and Influence (Advanced AS Analysis)

Not all stakeholders have equal say. A business must evaluate the relative importance and influence of each group.

Influence generally comes from two factors:

1. Power: How much they can force the business to comply (e.g., the government has legal power; a major shareholder has financial power).
2. Interest: How much they are concerned about the specific issue.

A highly powerful and highly interested stakeholder (like a large shareholder or a trade union planning a strike) requires maximum attention and needs to be satisfied.

A stakeholder with low power and low interest (like a distant member of the public) may only need minimal monitoring.

The Influence of Different Groups:

• Shareholders have high influence: they can sell their shares, causing the share price to fall, or vote out directors.
• Customers have influence through collective action: they can stop buying products and shift demand to competitors (consumer boycotts).
• The Government has the highest legal influence: they can shut down a business that breaks the law.

Final Key Takeaway: Stakeholder analysis is all about judging trade-offs. You must identify who wins, who loses, and how the losers might retaliate. This is essential for strong evaluation (AO4) in your exam answers!