1.1.3 Stakeholders (economic agents) and their objectives

Question 1

Stakeholders

Answer 1

Individuals or groups with an interest in the actions of a business

Question 2

Economic agents

Answer 2

Include those who take decisions to buy, spend, produce, sell or affect how resources are used

Question 3

Shareholders

Answer 3

Part owners of a business → played a part in financing the business directly or have bouts shares

Question 4

Dividend

Answer 4

Share of the profit each year

Question 5

Corporate culture

Answer 5

Set of important assumptions shared by people working in a business and influence the way decisions are taken there

Question 6

Corporate social responsibility

whose interests are taken account of

Answer 6

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)

Question 7

name 8 different stakeholders

Answer 7

1. shareholders
2. banks and lenders
3. directors and managers
4. employees
5. suppliers
6. customers
7. community
8. government

Question 8

shareholders interests and power

Answer 8

• Profit growth, share price, growth, dividends
• Election of directors

Question 9

banks interests and power

Answer 9

• Interest and principal to be repaid, maintaining credit rating, profitability and cash flow
• Can enforce loan covenants, can withdraw banking facilities

Question 10

directors and managers interests and power

Answer 10

• Salary. Share options, job satisfaction and security, status
• Make decisions, have detailed information

Question 11

employees interests and power

Answer 11

• Salaries and wages. Job security, job satisfaction and motivation
• Staff turnover, industrial action, service quality

Question 12

suppliers interests and power

Answer 12

• Long-term contracts, prompt payment, growth of purchasing
• Pricing, quality, product availability

Question 13

customer interests and power

Answer 13

• Reliable quality, value for money, product availability, customer service
• revenue/repeat business word of mouth recommendation
• Affect a companies’ reputation and competitive advantage

Question 14

community interest and power

Answer 14

• Environment, local jobs, local impact
• Indirect via local planning and opinion leaders

Question 15

government interest and power

Answer 15

• operate legally, tax receipts, jobs
• Regulation, subsidies, taxation, planning

Question 16

the shareholder model

Answer 16

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

Question 17

the stakeholder model

(benefits–> customers, staff, suppliers, pressure groups, reputation)

Answer 17

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

Question 18

differences between stakeholder and shareholders

Answer 18

• 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

Question 19

tradeoffs between stakeholder interests

Answer 19

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

Question 20

corporate culture

Answer 20

• 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

Question 21

levels of stakeholder power

Answer 21

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

Question 22

typical expectations of firms with CSR models

Answer 22

• 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

Question 23

why do some firms with a CSR policy not act in an ethical way

Answer 23

• 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

Question 24

why do firms adopt a CSR model

Answer 24

• 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

Question 25

positives of having a CSR model

Answer 25

• 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

Question 25

how can a CSR model be demonstrated

Answer 25

• Sustainable sourcing
• Responsible marketing
• Safe working conditions and pay
• Responsive customer service
• Protecting the environment
• Supporting social causes
• Investing in education

Question 26

negatives of a CSR model

Answer 26

• 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

Question 27

disadvantages of behaving ethically

Answer 27

• 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

Question 27

advantages to acting ethically

Answer 27

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

Question 28

Ethical decision making of firms

(short and longterm impact)

Answer 28

• 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