Topic 1: Business And Environment

1.4 Stakeholders


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A stakeholder is any person, group or organization that is directly or indirectly affected by the actions, objectives, and policies of a business organization. The decisions and actions taken by a business therefore are of key importance and interest to the stakeholders. In the eyes of the business all stakeholders are not equal and therefore each stakeholder interest is prioritized accordingly. Lets consider the fact that an interest if it is positive is a personal gain or benefit. If the interest is negative, it is a personal loss. The question you must ask yourself is, in what way does the business affect the stakeholders’ interest and what is the primary concern the stakeholder has in the business’ actions.


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The decisions made by a business organization may compliment or conflict with the interests of stakeholders. These stakeholder conflicts can lead to actions being conducted against the business. Action can also be taken in favor of a business where the complimentary interests of stakeholders are in danger of being ended.
Because not all stakeholders are the same, we also further identify them as internal and external stakeholders.

Internal stakeholders

Explain the interests of internal stakeholders

Internal stakeholders are those who work for or own the business organization.

Employees

The primary interest of the employee is the reason why they are in the business in the first place. In order to ensure that they have food, shelter and clothing, most employees have the personal interest of wanting continued job security and an income. Therefore, if a business makes a decision to reduce salaries and wages, the interests of these internal stakeholders would be in conflict with the decision. If the company decides to relocate, again the issue of discontinued income derived from employment will arise as a cause of concern for employees. If the business is to do well it must have a motivated staff that does not feel insecure or unable to meet the basic needs or standard of living that has been established.
Shareholders

As owners of the corporations by virtue of shares they hold, most investors are interested in a Return in their Investment (ROI). Dividends are paid on the shares in the form of interest when a profit is made and declared by the board of directors. Therefore, the main interest of the shareholder may come into conflict with management decisions if these shareholder interests are not met.


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Shareholder conflict almost always arises because corporate planning is usually driven by long-term strategic decisions that may call for re-investment of profit and subsequent deferment of dividend payments.

Managers

The manager is primarily interested in the successful operation of the business. The personal gains of the managers, in the form of income, are thereby linked to the success of the business. In addition, managers may decide to give themselves lavish salaries and go on expensive trips, thereby lowering profits and coming into conflict with shareholders. In this respect managers might also seek the strategy of growing the business by reinvesting all profit and expanding operations. This would inevitable result in a larger salary base and thereby conflict with the shareholder interests. All in all this what is known as the divorce of ownership and control.
External stakeholders

Explain the interests of external stakeholders.

External stakeholders are those who do not work for or own the business and are therefore outside or external.

Suppliers

The continued operation of a business will ensure that suppliers retain their business and are hopefully successful. Therefore the supplier as a stakeholder is interested in ensuring that the business continues to purchase its products. If the prices are fair and delivery is timely, this relationship is usually sustainable.
Customers

Goods and services that meet the needs and wants of customers is the primary interest of this stakeholder. If the products do harm to the customer or make them unhappy due to dissatisfaction, then a conflict of interest arises.

Special interest groups

These groups usually have an interest that is being challenged or threatened. Environmental protection groups such as Greenpeace are funded by members of society and effectively challenge the negative effects being inflicted by some corporations on the environment. Community based organizations are sometimes formed to collectively address issues of concern. Due to the strength generally associated with numbers, all these pressure groups are more effective than individual attempts against corporate threats. men51.gif
Competitors

In the event that competition is not free or fair, competitors will challenge their antagonists with the interest of preserving their own business. In situations where market structures favor one business, such as in a monopoly, the barriers to entry that challenge the interests of competitors will give raise to a conflict of interest. Monopolies are illegal and can therefore be challenged to restore a competitive market structure.
Stakeholder conflict

Discuss possible areas of conflict between stakeholders.

When stakeholders want different outcomes from a business activity and are unable to meet or accomplish their needs or wants, this is referred to as a conflict of interest.

As we noted, each stakeholder has a different interest and the business organization cannot treat all stakeholders equally. In addition, the decisions to continue operations are based on the primary objectives of the business survival and profit maximization among others. Therefore, conflicts of interest are inevitable, but the extent to which these conflicts are allowed to inflict on the interest of stakeholders will be a predicate to the challenges that the business will have to face.
Customers want products and services that are of an acceptable price and quality. The satisfaction that they derive from consumption is linked to the price paid and quality received. Consider the case of Mattel, Inc. and the lead-paint found in Barbie dolls.
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Employees join unions in order to ensure that their interests are protected and represented through the strength of collective bargaining. Unions are a formidable force in many industries and the conflicts of interest that they represent sometimes have wider implications. Consider the case of Boeing.Reflection Point torch.gif We have learned in this section that the goals, objectives and strategies of the business will become more of a reality if social and ethical standards of operation are met. Invariably, there are individuals and other organizations who have an vested interest in the activities of the Business Organization. These Stakeholders will want to at times promote or at times prevent a particular action.

Lets find out more about the role of stake holders in the following activity Knowing your Stakeholders.

1) Your task is to write a short explanation of why and how you think that the stakeholder/s you have identified in the "Conflicts Between Stakeholders exercise" are affected. 2) For further discussion on topics of interest go to Netvibes.com and comment on news article posts.

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Identify 3 stakeholders in your school? What conflicts can arise?