Unit 1.4 : Stakeholders

Question 1

Shareholders

Answer 1

Companies (private or public limited) are owned by the people who have invested in the business and the people who buy shares in the company are called shareholders

Question 2

Stakeholder

Answer 2

1. Any individual or organisation or group that is interested in or affected by the activities of a business (eg. clients, customers, employees, shareholders, employees)
2. Split into internal stakeholders and external stakeholders

Question 3

Internal stakeholders

Answer 3

1. members of the organization and are directly affected by the activities of a business
2. e.g. employees, managers, directors, shareholders for private limited companies

Question 4

Objective of employees

Answer 4

1. internal stakeholder
2. They will have a stake and an interest in the organization they work for
3. Employees are likely to strive to improve their pay and other financial benefits, working conditions, job security, and opportunities for career progression

Question 5

Objectives of managers and directors

Answer 5

1. internal stakeholder
2. might aim to maximise their own benefits such as annual bonuses so they want profit maximisation
3. They also look for long-term financial health of the organization

Question 6

Managers

Answer 6

people who oversee the daily operations of a business

Question 7

Directors

Answer 7

senior executives who have been elected by the company’s shareholders to direct business operations on behalf of the owners

Question 8

Objectives of shareholders

Answer 8

1. internal stakeholder in private limited company
2. can be external stakeholder in public limited company
3. They are a powerful stakeholder group as they have voting rights and have a say in how the company is run
4. They aim to maximise dividends and achieve a capital gain in the value of shares (rise in share price)

Question 9

External stakeholders

Answer 9

1. outside of the organization and are indirectly affected by the activities of a business
2. e.g. customers, suppliers, competitors, government, pressure groups

Question 10

objectives of customers

Answer 10

1. external stakeholders
2. Aim for safe and reliable products, value for money, well-designed products of good quality, reliability of product, service, and maintenance
3. Businesses use market research to find out what customers want

Question 11

objectives of suppliers

Answer 11

1. external stakeholder
2. suppliers provide a business with stocks of raw materials
3. Strive for regular contracts with clients at competitive prices and that customers pay bills on time
4. Businesses try to establish a good working relationship with suppliers in order to receive quality stocks on time and at a reasonable price

Question 12

pressure groups

Answer 12

1. consists of individuals with a common interest who seek to place demands on organizations to act in a particular way or to influence a change in their behaviour
2. Examples include organizations set up to campaign against smoking, deforestation, and the harmful treatment of animals or the protections of the environment

Question 13

objectives of pressure groups

Answer 13

1. external stakeholder
2. Have increasingly influenced the decisions and actions of businesses directly or by influencing government policy
3. Aim to get a business to act in a particular way congruent with their common interest

Question 14

objectives of competitors

Answer 14

1. Businesses might benefit from some competition as rivalry can create incentive for innovation
2. To remain competitive, businesses need to be aware of and respond to the practices of their rivals
3. To benchmark performance and compare key indicators against main rivals such as profit and market share

Question 15

objective of government

Answer 15

1. external stakeholder
2. the government can have a significant influence on business activity such as health and safety standards, taxes, consumer protection law etc
3. They may also have a financial stake in a business (owning shares of a company)
4. Aim to ensure that businesses act in the public’s interests - unemployment to decrease and economy to increase
5. They can stimulate business activity by lowering interest rates to create employment and investment opportunities

Question 16

Stakeholder conflict

Answer 16

1. Business decisions and activities can have both positive and negative effects on stakeholders, but it is rare for all stakeholders to be either positively or negatively affected by any one business activity.
2. It is also possible for any one stakeholder group to experience both negative and positive effects from the same business decision. This is why conflicts of interest between stakeholder groups, with different objectives and interests, arise.
3. Common cause of stakeholder conflict is the remuneration (pay and benefits) of the company directors. Shareholders and employees might argue that top management are overpaid and that there should be a fairer distribution of profits.

Question 17

Mutual benefits of stakeholders interests

Answer 17

1. There could also be mutual benefits in simultaneously meeting the competing needs of stakeholders
2. For example, addressing the needs of both employees and managers can lead to a highly motivated and productive workforce with low rates of absenteeism and staff turnover. This will lead to improved customer relations and profits so shareholders will also be please

Question 18

Stakeholder analysis

Answer 18

1. Large businesses or those businesses that have complicated stakeholder interests often perform a stakeholder analysis. The first step is to prioritise or rank the interests of various stakeholders.
2. One conceptual approach to this step is to determine how “close” each stakeholder is to decision-making in the business.

Question 19

Stakeholder mapping

Answer 19

1. Another tool used is stakeholder mapping 🡪 a model that assesses the relative interest of stakeholders and their relative power (or influence) on businesses.
2. It helps managers assess how to deal with changing and conflicting stakeholder objectives.
3. Whilst it is extremely difficult to please all stakeholders at the same time, managers can prioritise their actions by using this model.

Question 20

Johnson & Scholes Power Interest Model

Answer 20

1. A way to map stakeholders
2. Has 4 groups:
   Group A: Minimal Effort
   Group B: Keep Informed
   Group C: Keep Satisfied
   Group D: Key Players

Question 21

Group A: Minimal Effort

Answer 21

1. These stakeholders, who have minimal interest in the business and have limited power over it, are rarely a problem for the business.
2. Owners and managers fairly safely ignore these stakeholders, or at least devote limited energy and attention to satisfying their interests.

Question 22

Group B: Keep Informed

Answer 22

1. For owners and managers, making this group feel included is important. Newsletters, events and others ways of conveying a sense of belonging are important.

Question 23

Group C: Keep Satisfied

Answer 23

1. This pivotal group of stakeholders must be kept satisfied. They have the power to influence other groups.
2. The business must find ways to flatter the self-esteem of members of this group to make them feel important.

Question 24

Group D: Key Players

Answer 24

1. These stakeholders are the most important. The business must not merely communicate with them but also consult with them before any major decisions are made.
2. The business should focus on their needs in preference to the others. Failure to involve and satisfy these stakeholders can have very negative consequences for the business.

Question 25

Methods of stakeholder conflict resolution

Answer 25

1. Arbitration
2. Worker Participation
3. Profit-sharing schemes
4. Share-ownership schemes

Question 26

Arbitration

Answer 26

1. to resolve industrial disputes between workers and managers
2. Arbitration is the process of bringing a business dispute before a disinterested third party for resolution.

Question 27

Worker Participation

Answer 27

1. to improve communication, decision-making

and reduce potential conflict between worker and managers e.g. work councils, employee directors