Stakeholders

Question 1

Definition

Answer 1

Groups which have an interest in how a business operates

Question 2

Typical Stakeholders

Answer 2

Customers, employees, suppliers, creditors, debtors, the community

Question 3

Internal Stakeholders

Answer 3

Employees, managers & directors. They have different objectives:

Employees: earnings, hours, conditions, security, satisfaction

Managers & directors: earnings, bonuses, status, security, satisfaction

Question 4

External Stakeholders

Answer 4

Local residents, environmental groups, government, unions. Objectives:

Locals: pollution, congestion, employment

Env groups: env impact, pollution, wildlife

Gov: employment, tax, adherence to law

Unions: working conditions, pay

Question 5

Connected Stakeholders

Answer 5

Shareholders, customers, suppliers, banks. Objectives:

Shareholders: continued trading, profitability, dividends, share price

Customers: product availability, value for money, convenience, quality of service

Suppliers: payment terms, prompt payment, future orders

Banks: continued trading, profitability, loans repaid

Question 6

Primary vs. Secondary

Answer 6

Primary stakeholders have a direct interest in the business, so internal and connected stakeholders

Secondary stakeholders have an indirect interest, so external stakeholders

Question 7

Mendelow’s Matrix

Answer 7

Big square set in to 4 that shows how relationships should be built based on influence and power.
Low I & low P = minimal effort (a)
High I & low P = keep informed (b)
Low I & high P = keep satisfied (c)
High I & high P = key players (d)

Question 8

Mendelow’s Matrix Examples

Answer 8

Minimal effort: little to no influence on decision making ie small supplier or temps

Keep informed: no influence themselves, but could influence more powerful stakeholders ie employees or community groups

Keep satisfied: no direct interest but can have major impact on the business ie gov departments and tax authorities

Key players: critical to keep informed and involved ie major shareholders and key customers

Question 9

Shareholder Conflict

Answer 9

Conflict has to be resolved. Cyret and March proposed 4 ways to resolve conflict:

• Satisficing
• Sequential Attention
• Side payments
• Exercise of power

Question 10

Satisficing

Answer 10

Combination of satisfying and sacrificing. Involved negotiation between key stakeholder groups and agreeing a comprimise

Question 11

Sequential Attention

Answer 11

Taking turns focussing on the needs of different stakeholder groups

Question 12

Side Payments

Answer 12

A stakeholder is compensated for unmet needs

Question 13

Exercise of Power

Answer 13

Conflict is resolved by a senior figure who exercises their power to force through a decision

Question 14

Agency Problem

Answer 14

Principal-agent problem arises because shareholders hire management - an agent - to run the business, but their objectives might not be aligned.

Question 15

Baumol’s Theory of Sales Maximisation

Answer 15

Agency problem: managers will always be more concerned with maximising sales as bonuses are more likely to be tied to sales over profit. Shareholders want to maximise profits.

Question 16

William’s Model of Managerial Discretion

Answer 16

Agency problem: in satisfying their own needs, management may incur costs. As long as profits support these costs, there’s little motivation to improve company performance.

Question 17

Information Asymmetry

Answer 17

Where information available to each party is not equal

Question 18

Agency Problem Solutions

Answer 18

Bonus payments linked to profits
Employee profit sharing schemes
Management given shares 
Management shared by a number of directors
Corporate Governance

Question 19

Corporate Governance

Answer 19

Rules and procedures put in place to determine how an organisation is controlled and managed

Question 20

Corporate Governance Methods

Answer 20

Set levels of reporting and disclosure

Rules for how the board of directors is managed and decisions are made

Compulsory regular communication with shareholders

Independent directors (non exec) sit on the board

Question 21

Not for Profit Stakeholders

Answer 21

Will have its own objectives as it isn’t profit maximisation. They can still suffer from agency problems such as employees focussing on nice offices or salaries rather than the company objective