3.4.3 Shareholders vs Stakeholders Flashcards
Stakeholder
Any individual or organisation who has vested interest in the activities and decision making of a business.
Internal stakeholders
Groups or individuals within an organisation who have an interest in the business.
- Shareholders or business owners.
- Managers and employees.
External stakeholders
Groups or individuals outside of an organisation who have an interest in the business.
- Customers.
- Suppliers.
- The media.
- Other external groups (e.g. pressure groups).
- Banks and other finance providers.
- Trade unions.
- Government.
- Local community.
- Competitors.
Objectives of shareholders/owners
Return on investment + profits and dividends.
Success and growth.
Objectives of managers and employees
Rewards (basic pay and financial incentives).
Job security and working conditions.
Promotion opportunities + job satisfaction - motivation, roles and responsibilities.
Objectives of customers
Value for money, product quality and customer service.
Objectives of suppliers
Continued, profitable trade with the business.
Financial stability.
Objectives of banks and finance providers
Can the business repay amounts loaned or invested.
Profitability and cash flows of business.
Objectives of the government
Correct collection and payment of taxes (VAT).
Helping the business to grow (creating jobs).
Compliance with business legislation.
Objectives of the local community
Success of the business - particularly creating and retaining jobs.
Compliance with local laws and legislation.
Stakeholder approach
A business should consider all of its stakeholders in its business decisions/objectives.
Shareholder approach
A business should focus purely on shareholder returns in its business decisions/objectives.
Maximising profits in order to increase dividends and improve the share price.
Reasons for and against stakeholder approach
+ Brand image, reputation and publicity.
+ Attracts ethical investors.
+ Better relations with suppliers means smoother operations.
+ Better relations with employees reduces staff turnover.
- Short-term investors may be unhappy/sell shares.
- Lack of clear goals and inefficiency.
- Some stakeholders may not have much interest or power.
Reasons for against shareholder approach
+ Shareholders have risked personal finance to invest so should be given priority.
+ Could increase ability to raise funds through selling shares for future investment.
- Some stakeholders may be very powerful.
- Employees may be demotivated, or staff turnover may be higher.
- Suppliers may be less co-operative, resulting in higher costs or inefficiencies.
- Bad publicity.
Potential conflict between shareholders and employees
Shareholders aim to maximise the return on their investment.
Employees aim for higher wages and better conditions which will increase costs and reduce profits.
