Stakeholders Flashcards
Definition
Groups which have an interest in how a business operates
Typical Stakeholders
Customers, employees, suppliers, creditors, debtors, the community
Internal Stakeholders
Employees, managers & directors. They have different objectives:
Employees: earnings, hours, conditions, security, satisfaction
Managers & directors: earnings, bonuses, status, security, satisfaction
External Stakeholders
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
Connected Stakeholders
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
Primary vs. Secondary
Primary stakeholders have a direct interest in the business, so internal and connected stakeholders
Secondary stakeholders have an indirect interest, so external stakeholders
Mendelow’s Matrix
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)
Mendelow’s Matrix Examples
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
Shareholder Conflict
Conflict has to be resolved. Cyret and March proposed 4 ways to resolve conflict:
- Satisficing
- Sequential Attention
- Side payments
- Exercise of power
Satisficing
Combination of satisfying and sacrificing. Involved negotiation between key stakeholder groups and agreeing a comprimise
Sequential Attention
Taking turns focussing on the needs of different stakeholder groups
Side Payments
A stakeholder is compensated for unmet needs
Exercise of Power
Conflict is resolved by a senior figure who exercises their power to force through a decision
Agency Problem
Principal-agent problem arises because shareholders hire management - an agent - to run the business, but their objectives might not be aligned.
Baumol’s Theory of Sales Maximisation
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.
William’s Model of Managerial Discretion
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.
Information Asymmetry
Where information available to each party is not equal
Agency Problem Solutions
Bonus payments linked to profits Employee profit sharing schemes Management given shares Management shared by a number of directors Corporate Governance
Corporate Governance
Rules and procedures put in place to determine how an organisation is controlled and managed
Corporate Governance Methods
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
Not for Profit Stakeholders
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
