1.1.3 Stakeholders (economic agents) and their objectives Flashcards
Stakeholders
Individuals or groups with an interest in the actions of a business
Economic agents
Include those who take decisions to buy, spend, produce, sell or affect how resources are used
Shareholders
Part owners of a business → played a part in financing the business directly or have bouts shares
Dividend
Share of the profit each year
Corporate culture
Set of important assumptions shared by people working in a business and influence the way decisions are taken there
Corporate social responsibility
whose interests are taken account of
Taking decisions in a way that takes account of all the stakeholders interests (ie. fair pay, fair treatment of employees, customers and suppliers, avoiding pollution and contributing positively to the local community)
name 8 different stakeholders
- shareholders
- banks and lenders
- directors and managers
- employees
- suppliers
- customers
- community
- government
shareholders interests and power
- Profit growth, share price, growth, dividends
- Election of directors
banks interests and power
- Interest and principal to be repaid, maintaining credit rating, profitability and cash flow
- Can enforce loan covenants, can withdraw banking facilities
directors and managers interests and power
- Salary. Share options, job satisfaction and security, status
- Make decisions, have detailed information
employees interests and power
- Salaries and wages. Job security, job satisfaction and motivation
- Staff turnover, industrial action, service quality
suppliers interests and power
- Long-term contracts, prompt payment, growth of purchasing
- Pricing, quality, product availability
customer interests and power
- Reliable quality, value for money, product availability, customer service
- revenue/repeat business word of mouth recommendation
- Affect a companies’ reputation and competitive advantage
community interest and power
- Environment, local jobs, local impact
- Indirect via local planning and opinion leaders
government interest and power
- operate legally, tax receipts, jobs
- Regulation, subsidies, taxation, planning
the shareholder model
Traditional business model rests on the idea that shareholders interests are the most important, and other groups are of secondary importance
- Profit maximisation is the main priority of all the managers
- Managers should concentrate on the best interests of the shareholders
- If shareholders want short-run profit maximisation at the expense of long-term growth, then it is the responsibility of the business managers to deliver this
- Managers employed to manage for shareholders → needs, desires and aspirations of other interest groups should not take precedence over shareholder interests
This approach has been criticised as too short term → pursuit of profit is not always in the best long term interests of the business
- Uk businesses prone to shorterminsm, leading to missed opportunities
the stakeholder model
(benefits–> customers, staff, suppliers, pressure groups, reputation)
Many businesses widen their scope beyond the interests of the shareholders. Stakeholder approach to business decision making means that the managers have a responsibility to take account of the interests of all the stakeholder groups that are affected.
Benefits include:
- Improved image perception by consumers, leading to greater sales and increased competitive advantage
- Improved retention and motivation of staff
- Closer relationships with suppliers, leading to better quality and more reliable service
- A reduction in the disruption of commercial activities by pressure groups
- A reputation for reliability and stability that may result from paying creditors
- Improved public relations, resulting in more favourable media coverage
differences between stakeholder and shareholders
- Stakeholders have an interest in the business but do not own it, and only interact with the business
- shareholders Own the business and benefit directly from increased value of the business
tradeoffs between stakeholder interests
Shareholders want to maximise profits
- Can cause demand to contract, as customers want low prices, decreasing overall revenue
- Suppliers: low quality is cheaper so could increase revenue, but customers may stop buying if quality drops
- The employees want to maximise profits
Customers want to lower prices and better service - The government wants tax revenue
- Local community wants minimum disruption and help with local infrastructure developments
- The environment needs protecting from excessive business activity
corporate culture
- In the short term developing the interests of all other stakeholders may have a negative impact on profits and dividends. Businesses vary in the way they are prepared to consider ALL the needs of the stakeholders
- This depends on the corporate culture they have adopted and can be affected by shareholders and managers attitudes
levels of stakeholder power
If they have a high level of stakeholder power, the company wants to keep them happy
- Seen as key players
- Taken notice of
- Engaged with directly
If they have a low level of stakeholder power, the company only communicated with them if necessary
typical expectations of firms with CSR models
- They conduct business in an ethical way and in the interests of the wider community
- Respond positively to emerging social priorities and expectations
- Have a willingness to act ahead of regulatory confrontation
- Balancing shareholder interests against the interests of the wider community
- Being a good citizen in the community
why do some firms with a CSR policy not act in an ethical way
- Not all businesses act in a socially responsible manner
- Some argue its not the job of the business to be concerned about social issues and problems
- Free market view vs CSR view
- Other factors may be seen as more important to customers than ethics → eg price for people with little choice
why do firms adopt a CSR model
- A genuine desire to behave responsibly (altruism)
- A wish to show a positive public image
- A positive marketing ploy
- A smokescreen to hide behind
- Wanting to fit in with everyone else
positives of having a CSR model
- It can help foster a good public image and reputation
- It can increase sales - socially responsible actions can be profitable
- It improves stakeholder relationships and reduces potential conflicts
- It is the ethical thing to do
how can a CSR model be demonstrated
- Sustainable sourcing
- Responsible marketing
- Safe working conditions and pay
- Responsive customer service
- Protecting the environment
- Supporting social causes
- Investing in education
negatives of a CSR model
- The only social responsibility of a business is to create shareholder wealth
- Efficient use of resources will be reduced if businesses are restricted with actions
- Businesses cannot decide what is in society’s interest
- Extra costs will be incurred which must be passed onto consumers
- CSR stifles innovation through regulation
disadvantages of behaving ethically
- labor costs rise
- suppliers might be more expensive per unit
- protecting environment increases costs
- competitors who are not as ethical have lower costs and gain competitive advantage
advantages to acting ethically
in long run:
- improved PR= more sales = more profit,
- happier employees and increased productivity
- gained competitive advantage
- positive PR, sales and brand loyalty increase
- improved supplier relationships so quality increases
Ethical decision making of firms
(short and longterm impact)
- following codes of practice that embody moral values –> striving to do the right thing
- includes what to make, where to make it, pay/working conditions, capital and labour and the environment
- acting ethical leads to lots of cost so less profit in the short run, but in the
