15. Stakeholder Vs Shareholder Model

Question 1

<p>How is External Stakeholders defined?</p>

Answer 1

<p>Groups outside a business with an interest in its activities.</p>

Question 2

<p>How is Internal Stakeholders defined?</p>

Answer 2

<p>Groups inside a business with an interest in its activities.</p>

Question 3

<p>How is Shareholder Value defined?</p>

Answer 3

<p>A measure of company performance that combines the size of dividends with the share price.</p>

Question 4

<p>How is Stakeholders defined?</p>

Answer 4

<p>Groups or individuals who can affect or be affected by the actions of a business.</p>

Question 5

<p>What are some examples of Internal Stakeholders?</p>

Answer 5

<p>- Business Owners
<br></br>- Employees
<br></br>- Managers and Directors</p>

Question 6

<p>Why may a Business Owner be an Internal Stakeholder?</p>

Answer 6

<p>- A business is the property of the owner
<br></br>- Owners are stakeholders because they stand to gain or lose, financially from the performance of the business
<br></br>- They will benefit if the value of the business increases
<br></br>- However if the business fails the owners may lose the money that invested in the business
<br></br>- Most large plcs some of the senior managers and members of the board are likely to own shares
<br></br>- One reason for this is because part of their remuneration often consist of shares
<br></br>- Finally, in some companies employees may own a small number of shares</p>

Question 7

<p>Why may a Employees be an Internal Stakeholders?</p>

Answer 7

<p>- Employees depend on businesses for their livelihood
<br></br>- Most employees have no other sources of income and rely on wage to live on
<br></br>- Some employees are represented at work by trade inions
<br></br>- If this is the case, then trade unions also become stakeholders,
<br></br>- The needs of employees are often in conflict with those of other stakeholders, such as owners and managers</p>

Question 8

<p>Why may Managers and Directors be an Internal Stakeholders?</p>

Answer 8

<p>- In small businesses managerial tasks, such as organising, decision making, planning and control are undertaken by the entrepreneur themselves
<br></br>- However, in large businesses the key decisions relating to company policy and strategy are made by the board of directors
<br></br>- It is then the responsibility of managers to ensure that the policies and strategies are implemented
<br></br>- Large businesses employ specialists in managerial position
<br></br>- Managers have to show leadership, solve problems make decisions etc.
<br></br>- Managers are likely to help plan the direction of the business with owners
<br></br>- they also have to control resources such as finance equipment, time and people
<br></br>-Manager are also accountable, this means they are responsible for their actions and the actions of their subordinates
<br></br>- Managers are accountable to senior manager in the managerial hierarchy.
<br></br>- The board of directors is accountable to the shareholders</p>

Question 9

<p>What are some Examples of External Stakeholders?</p>

Answer 9

<p>- Shareholders<br></br>- Customers<br></br>- Creditors<br></br>- Suppliers<br></br>- Pressure groups<br></br>- The Local Community <br></br>- The Government <br></br>- The Environment</p>

Question 10

<p>Why are Shareholders a External Stakeholder?</p>

Answer 10

<p>- Most Shareholders in large companies are not involved in the day-to-day running of the business
<br></br>- They are investors and have a purely financial interest
<br></br>- External shareholders, who might be individual, or more likely , financial institutions, invest their money to get a financial return
<br></br>- Shareholders are also entitle to a vote at the AGM of a PLC
<br></br>- They can vote to re-elect or dismiss the current board of directors
<br></br>- However, many external shareholders do not take up these entitlement, If they are not happy with the way the company is being rub, or the return they get is inadequate, external shareholder can sell their shares and invest their money elsewhere</p>

Question 11

<p>Why are Customers a External Stakeholder?</p>

Answer 11

<p>- Customers buy the goods and services that businesses sell
<br></br>- Through their purchases they provide the revenue and profit that businesses need to survive
<br></br>- However, customers need businesses because they provide the goods and services they require and want
<br></br>- Most customers are consumers (individuals and families) who use or 'consume products
<br></br>- However, some may be other businesses
<br></br>- For example, JCB manufactures a range of construction machinery that it sells to other businesses</p>

Question 12

<p>Why are Creditors a External Stakeholder?</p>

Answer 12

<p>- Creditors lend money to a business
<br></br>- They may be banks, but could also be individuals, such as family members, or private investors, such as venture capitalists
<br></br>- Clearly, these stakeholders have a financial interest in a business and will be keen for it to do well
<br></br>- Creditors will expect their interest payments to be met and their money returned at the end of the loan period
<br></br>-They will also want clear communication links with the business</p>

Question 13

<p>Why are Suppliers a External Stakeholder?</p>

Answer 13

<p>- Businesses that provide raw materials, components, commercial services and utilities to other businesses are called suppliers
<br></br>- Relations between businesses and their suppliers need to be good because they rely on each other
<br></br>- Businesses want good-quality resources at reasonable prices.
<br></br>- They also want prompt delivery, trade credit (buy now pay later) and flexibility.
<br></br>- In return suppliers require prompt payment and regular orders
<br></br>- As with customers and businesses, there is a mutual dependence between suppliers and businesses</p>

Question 14

<p>external stakeholders: pressure groups + example</p>

Answer 14

<ol><li><span>Pressure groups such as tradeunions or environmental groups like Greenpeace maytry to influence business activities. They may do this ifspecific activities threaten the interests of that group.Pressure groups can exert influence by finding alliesin the media, by organising protest marches, and by running marketing campaigns to express their concerns.</span></li><li><span>For example, Greenpeace might publish an article in the media that draws attention to a business which isthreatening a wildlife habitat.</span></li></ol>

Question 15

<p>What are the Positive reasons The Local Community is an External Stakeholder?</p>

Answer 15

<p>- A business may employee people locally and if the business foes well the community may prosper.
<br></br>- there may be more jobs, more overtime and possibly higher pay
<br></br>- This will have a knock-on effect in the community e.g. shops, restaurants and cinemas may benefit form extra spending</p>

Question 16

<p>What are the Negative reasons The Local Community is an External Stakeholder?</p>

Answer 16

<p>- A business may be criticised by the local community
<br></br>- For example, if a factory is noisy, polluting or works at nigh t there may be complaints form local residents
<br></br>- If a business that employed a lot of local people closes down, the impact on the community can be devastating
<br></br>- In the 1980s when many coal mines were closed in the UK, the mining communities suffered badly due to very high unemployment</p>

Question 17

<p>Why are the Government an External Stakeholder?</p>

Answer 17

<p>- The government has an interest in all businesses
<br></br>- Generally the government will want businesses to be successful
<br></br>- They provide employment ,generate wealth and pay taxes
<br></br>- Taxes form businesses and their employees are used to fund government expenditure
<br></br>- It helps to pay for benefits, the NHS, schools and other services
<br></br>- If businesses fail, the government loses tax revenue and has to by benefits to the unemployed
<br></br>- However, the government will also require businesses to comply with the law
<br></br>-A significant amount of legislation exists to protect those who might be exploited by businesses if they were too powerful</p>

Question 18

<p>Why is The Environment an External Stakeholder?</p>

Answer 18

<p>- Business activity can have an impact on the environment
<br></br>- For example, if a business releases toxic waste into the waterway system, wildlife and its habitats could be destroyed
<br></br>- Thus, representatives of the environment have an interest in business activity
<br></br>- These representative may be individuals or environmental groups, such has Friends of Earth and Greenpeace
<br></br>- An increasing number of people are concerned about environmental issues; consequently environmental groups are becoming more influential in business decision making</p>

Question 19

<p>What are the Objectives of Shareholders interested in a Business?</p>

Answer 19

<p>- The majority of shareholders ill want the business to maximise shareholder value
<br></br>- This is a measure of a company performance that takes into account the size of dividends (share in profits) and the share price
<br></br>- Over time shareholders want this to grow
<br></br>- if the growth in shareholder value is not to the satisfaction of external investors they may sell their shares
<br></br>- This could result in a fall in the share price which might make the company vulnerable to a takeover</p>

Question 20

<p>What are the Objectives of Employees interested in a Business?</p>

Answer 20

<p>- Employees want the business that they work for to prosper.
<br></br>- If a business is growing and profitable, employees are likely to get higher wages, more perks and perhaps a bonus
<br></br>- They will also feel more secure in their jobs
<br></br>- It could be argued that, according to Herzberg, employees expect good pay and comfortable working conditions
<br></br>- However, they will also want responsibility, interactions with colleagues, to be valued, personal development, fair and honest treatment, and opportunities for promotion
<br></br>- Safety at work is also important as are issues to do with equal opportunities
<br></br>- Generally, employees will want to maximise there financial rewards and welfare</p>

Question 21

<p>What are the Objectives of Managers interested in a Business?</p>

Answer 21

<p>- Managers and Directors are likely to have similar needs to those of employees
<br></br>- Many managers (and employees) have part of their remunerations linked to the performance of the business and will therefore want the business to perform well
<br></br>- Mangers may also press for other benefits, for instance bonus payments if they perform well, expense allowance when travelling on company business, and benefits such as a company, free health insurance and more flexibility
<br></br>- Some senior executives may see power as an objective; they like 'empire building' As a result , the shareholder may lose the ability to influence key decisions in the organisation</p>

Question 22

<p>What are the Objectives of Customers interested in Business?</p>

Answer 22

<p>- Customers want good-quality products at a fair price
<br></br>- They also want clear and accurate information about products and high-quality customer service
<br></br>- they may also want choice, innovative products and flexibility
<br></br>- For some products, such as machinery, electrical goods and children's products, safety is an important issue
<br></br>- If these needs are not met, customer will spend their money elsewhere
<br></br>-Customers have a powerful influence on businesses
<br></br>-They are also more aware today about the range of products available and about their rights as consumers
<br></br>- In competitive markets only those businesses that meet customers needs are likely to survive</p>

Question 23

<p>What are the Objectives of Suppliers interested in Business?</p>

Answer 23

<p>- Suppliers want to be treated fairly by businesses
<br></br>- They will also want a fair price for their goods and service and to be paid in reasonable time
<br></br>- In 2013/14 it will suggested in the media that some businesses might 'bully' suppliers
<br></br>- For example, some stores might put pressure on suppliers and demand price cuts because of the fall in commodity prices
<br></br>- They might threaten to withdraw products if suppliers refuse to comply
<br></br>- IN cases such as these, an investigation might take place by the Groceries Code Adjudicator, for example</p>

Question 24

<p>What are the Objectives of the Government interested in Business?</p>

Answer 24

<p>- The government will want businesses to grow and make more profit
<br></br>- They will also want them to comply with legislation and not exploit vulnerable groups</p>

Question 25

<p>What are the Environmental Objectives with those interested in Business?</p>

Answer 25

<p>- Environmental groups will want businesses to avoid having any negative impact on the environment
<br></br>- For example, they will demand that business activity does not damage wildlife and its habitats, pollute the atmosphere or waste resources</p>

Question 26

<p>What are the Objectives of the Local Community with those interested in Business?</p>

Answer 26

<p>- Local communities will want businesses to contribute to the prosperity of the community and be good corporate citizens
<br></br>- Communities would probably want businesses to create employment and, depending on their size, nature of business and capabilities, build links with schools and charities, maintain open communications, and avoid or minimise congestion and pollution in the area</p>

Question 27

<p>How can Corporations take into account the Objective of Stakeholders when making Business Decisions?</p>

Answer 27

<p>- Recognise the interests of other stakeholders and take their views into account when running the business and making decisions
<br></br>- Maintain open communication channels with other stakeholders and consult with other stakeholders and consult with then before making radical changes
<br></br>- Recognise the interdependence that exists between different stakeholders, ensuring that the benefits of enterprise are distributed fairly after taking into account the level of effort and risk each group contributes
<br></br>- Minimise or eliminate the adverse effects of business activity, Id such effect cannot be avoided then those affected should be adequately compensated</p>

Question 28

<p>Why may Business take into account the Objective of Stakeholders when making Business Decisions?</p>

Answer 28

<p>- Some Businesses might claim to have adopted this stakeholder approach
<br></br>- Part of the reason for this is that corporations are coming under increasing pressure form stakeholders, the media and the wider public to be more socially responsible
<br></br>- It might be argued that some businesses like to give the impression that they consider the needs of wider range of stakeholders but in reality they are still more focused on shareholders needs
<br></br>- For example, a business might claim to adopt an ethical stance purely to increase sales, revenue and profit</p>

Question 29

<p>Why may business focus more on the Shareholders Objectives than Other Stakeholders when making Business Decisions?</p>

Answer 29

<p>- Traditionally, many corporations have focused on growth or profit when making important business decisions
<br></br>- The objective of shareholders have had more influence on decision making than those of their stakeholders
<br></br>- This approach was based on the ideas that directors and mangers are employed by shareholders and should therefore serve their interests
<br></br>- this meant that they should make as much money as possible for the owners of the business provided they comply with the law
<br></br>- Some businesses still adopt this approach and their main objective is to maximise shareholders returns by raising both dividends paid to shareholders and the share price</p>

Question 30

<p>What are the potential conflicts that could happen between Shareholders and Employees?</p>

Answer 30

<p>- offering higher wages, better conditions, more perks and bonuses training and improving welfare comes at a cost
<br></br>- If the needs of employees are met in full there is likely to be negative impact on profit and dividends
<br></br>- Conflict will arise if shareholders insist tat the rewards to employees should not come at the expense of dividends
<br></br>- Employees may try to put pressure on the business to ensure their objectives are met by threatening industrial action
<br></br>- However, i f this action is too disruptive it may jeopardise the survival of the businesses
<br></br>- Employees have to be careful not to push their claims too far</p>

Question 31

<p>What are the potential conflicts that could happen between Shareholders and Customers?</p>

Answer 31

<p>- Most likely to arise if a business charges prices that are too high
<br></br>- Higher prices will help boost shareholders return but reduce the purchasing powers of customers e.g. in 2014 Gas prices rose even though the cost of gas paid by suppliers fell
<br></br>- Customers might also come into conflict with businesses if levels of customer service are poor or if businesses fail to invest in R&D and bring out new products
<br></br>- however, if businesses can cut back on R&D expenditure they can pay shareholders higher dividends</p>

Question 32

<p>What are the potential conflicts that could happen between Shareholders and Directors and Managers?</p>

Answer 32

<p>- Senior Managers and Directors are employed to further the interests of shareholders
<br></br>- however, conflict may arise if they start to prioritise their own objectives, such as maximising remuneration, expenses, perks and other beneits
<br></br>- If these are too high, profit and dividends may suffer
<br></br>- This is most likely to happen if shareholders lose some of their control over the business --> there may be a 'divorce of ownership and control'
<br></br>- This can happen if shares are held by a very large number of different shareholders where no single shareholder has any significant control
<br></br>- A common conflict between shareholders and directors is the balance between paying dividends and retaining profits for investments</p>

Question 33

<p>What are the potential conflicts that could happen between Shareholders and the Environment?</p>

Answer 33

<p>- in an effort to maximise profit, a business might neglect its responsibilities towards the Environment e.g. in 2011 some UK Water companies were draining rivers that were at risk of completely drying up which led to the death of some wildlife and a build up of chemicals
<br></br>- The report suggested that companies were extracting water from theses sources as they were the cheapest
<br></br>- Activities such as these may attract the attention of the media and environmental groups, resulting in conflicts between the company and environmentalists</p>

Question 34

<p>What are the potential conflicts that could happen between Shareholders and the Government?</p>

Answer 34

<p>- Conflicts between shareholders, and the government is likely if businesses break the law
<br></br>- However, the judicial system should resolve such conflicts
<br></br>- in 2013/14 there was evidence that some big corporations were avoiding the payment of tax in the UK e.g. Amazon only paid £4.2 mil of tax on a revenue of £4.3 bn
<br></br>- If corporations can reduce the amount of tax they pay then the shareholders will enjoy bigger profits
<br></br>- However, if businesses are able to avoid paying taxes the government if likely to be criticised
<br></br>- In the future, governments might have to pursue such businesses for the payment of taxes or risk losing their political support</p>