Golspie High School

Business Management

Higher

Understanding Business

7 Stakeholders

Stakeholders Page 2

Learners should be aware of the differing objectives of groups of stakeholders in

terms of:

stakeholder conflict and resolution

stakeholder interdependence

Stakeholders are individuals or groups of people who have

an interest in, and stand to be affected by, the success or

failure of an organisation.

Internal stakeholders – groups within a business include:

Stakeholder Interest Influence

Owner(s)

(sole trader/

partnerships)

Profit

Good return on the money

they have invested in the

business

Increase in value of the

business

Stability to ensure future

returns

Make decisions that will affect the business

Invest more capital in the business

Sell their investment in the business

Shareholders

(limited

companies

and plcs)

Shareholders will be

interested in healthy profits

which will ensure them…

a high level of dividend,

growth and stability leading

to…

an increase in the value of

their shares.

Stability to ensure future

returns

Invest more capital in the business

Sell their investment in the business

Contribute to decision making by voting

at the Annual General Meeting

Sell their shares in business which won’t

affect organisation directly but may cause

the share price to fall which in turn may

harm the organisation’s image in the press.

Vote at the AGM – choose the BOD,

approve the dividend percentage.

The strength of individual shareholders

depends on number of shares they own.

Protest against decisions they don’t agree

with, eg a big salary increase for the MD.

Managers Fair salary and bonuses

Promotion opportunities

Status and responsibility

Job satisfaction and security

Managers may put desire

for ‘perks’/fringe benefits

(eg company cars), ahead

of profit maximisation.

Makes decisions on future plans of the

organisation; poor decisions can affect

success of the business, eg employing

unreliable staff

Will suggest areas of investment, areas

needing improved to provide a better

service, ensure objectives are met, etc

Employees Good rate of pay -

profitability to determine if

Standard of work – can produce a quality

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External stakeholders – groups outside a business include:

Stakeholder Interdependence & Conflict

they are entitled to a wage

increase

Job satisfaction and security

Good working conditions

product or service by working hard

Customer service

Lack of motivation

Industrial action eg go on strike

High/low absence rates

Put forward suggestions for improvement

of services

Stakeholder Interest Influence

Customers Value for money on product

or service

Good-quality product or

service

Good customer service

Choose to shop here or elsewhere

Complain about product or

customer service

Damage reputation of business

Banks Business to open an account

with them

The stability of the

organisation to ensure it will

be able to repay loans on

time and in full

Approve/refuse to provide

overdraft or loan

Charge higher interest rates

Suppliers Business to place repeat

orders

To be paid for goods or

services supplied on time and

in full

Increase/decrease their prices

Withdraw offers of discount

Refuse trade credit

Deliver late

Deliver goods that are not fit for

purpose

Government Correct amount of tax is paid

to Inland Revenue

Legislation is adhered to

Provision of employment

Change the rate of tax

Change the rate of minimum pay

Change legislation

Local

community

Social responsibility in local

area

Provision of employment

Protest against the business

through MPs and local press

Petition the organisation to make

a change to environmental

policies

Stakeholders Page 4

Interdependence

“Why a stakeholder needs another stakeholder.”

Conflict of Interests

“The disagreements that can occur between different

stakeholders.”

A business cannot satisfy the interests of all stakeholders all of the time: this is known

as a conflict of interest. Some examples of conflicts of interest follow.

Stakeholders Interdependence Conflict

Owners and

employees

Owners need employees to

carry out different tasks and

employees need owners to

pay their wages.

Owners need employees to

be as productive as they can

and employees need owners

to provide the necessary job

training.

Owners want to pay as low a

wage as possible so that their

profit is high whereas

employees want high wages for

their work.

Owners want employees to

work as many hours as they can

whereas employees want to

work as few hours as possible.

Disagreement can occur about

the working environment, for

example temperature.

Reorganisation of the business

to become more efficient will

benefit the owner, but

employees may feel they are

being given extra responsibility

without training or financial

reward.

Owners and

customers

Owners need customers to

buy products from them to

make profit and customers

need owners to provide

them with the product they

want.

Owners need customers to

become loyal to increase

market share and customers

want to be rewarded for

loyalty (eg discounts).

Owners want to make as

much profit as possible by

charging the highest price

they can whereas customers

want as low a price as

possible.

Owners want to keep costs

low by providing the

cheapest possible service they

can whereas customers want

the best possible service (eg

after-sales).

Employees Employees need customers Employees want customers

Stakeholders Page 5

and

customers

to buy from an organisation

so that they get paid and

customers need employees

to provide them with good

customer service.

to spend as much as possible

to increase their commission

whereas customers want as

much discount as possible.

Owners and

suppliers

Owners need suppliers to

provide products on time

and suppliers need owners to

provide them with repeat

orders.

Owners need suppliers to

provide a quality product at

a suitable price to make a

profit and suppliers need

owners to pay their invoices

within an agreed time to

prevent cash flow problems.

Owners want supplies for as

low a price as possible

whereas suppliers want to

maximise profits.

Owners want to wait for as

long as possible before

paying their debts whereas

suppliers want paid as

quickly as possible.

Owners vs managers

Owners want to maintain control of the business but managers can become too

powerful and influential.

Managers will focus on their personal objectives, eg high salary and bonuses. which

will conflict with the owner’s objective of maximising profit.

Customers vs owners

Customers expect a satisfactory quality of goods for the price they paid. The

business may try to reduce costs by using poorer quality materials, resulting in

customers wanting a refund and the business losing sales revenue.

Customers want delivery of the goods as soon as possible, but the cost of this can

make it difficult for a business to achieve the customers’ expectations.

Customers expect excellent customer service before, during and after buying a

product. However, it is expensive for a business to train staff and provide this level

of service.

Suppliers vs managers

To improve cash flow managers want to keep cash within the business for as long

as possible and may delay paying suppliers for goods/services provided. However,

if suppliers are not paid within a reasonable time (usually 28 days) this can cause

them financial hardship and cash flow problems of their own.

Management/Owners vs Local Community

Stakeholders Page 6

They may want to build another outlet to achieve their aim of growth. However

this may upset the local community who try to block their planning permission

because they do not want additional traffic in their area

Employees vs Customers

Workers may want a higher rate of pay however this may lead to higher prices for

consumers which conflicts with their desire for low prices

Owners v Banks

Owners of the business may want to invest in new technology and need the bank’s

approval for a loan. However, banks may be unwilling to lend money to the

business because they think it is too high a risk.

Interdependence of stakeholders

“Why a stakeholder needs another stakeholder.”

Despite possible conflicts of interest stakeholders also rely on each other to achieve

their own objectives.

Owners rely on the skills and ability of the management team to achieve their

objective, and the managers rely on the owners for job security, salary and support in

their management role.

Owners need employees to carry out different tasks and employees need owners to

pay their wages.

Employees rely on managers to provide leadership and direction to successfully do

their jobs, while managers rely on employees to achieve their targets and meet

deadlines. Managers are accountable if their employees work inefficiently.

Business owners are reliant on customers to buy their goods/services to generate sales

revenue, while customers are employees of businesses and rely on them to earn their

salary to generate enough income to buy goods/services to satisfy their needs and

wants.

Stakeholders Page 7

Different groups of stakeholders will have different aims regarding an organisation.

Suppliers will want to get regular orders with prompt payment after a reasonably brief

period of credit.

Customers will want low prices, high quality, and good after -sales service.

Banks will want the firm to be able to meet its loan and interest repayments on time.

The government will want to ensure the organisation complies with the law, pays the

correct amount of Corporation Tax and Value Added Tax, and provides employment for

the working population.

The community as a whole (that is, society) will want organisations to demonstra te

corporate responsibility, not harm the environment, treat employees fairly, and not

exploit consumers.

Taxpayers have a stake in businesses because some of the taxes that they pay may be

used to help businesses, e.g. in the form of government grants or other assistance.

Taxpayers will wish to ensure that these payments are used for their benefit, e.g. to

increase employment opportunities.

Donors are important stakeholders in charities. They will wish to see the money that

they have donated used for the purpose of the charity, e.g. to help refugees, to prevent

cruelty to animals, etc.

The local community has a stake in businesses which are situated in their area.

Businesses provide employment and may also sponsor local events. Their existence may

influence the provision of services like schools and hospitals. They may also affect the

local environment (e.g. if new roads are built).

Local government may have a stake in businesses in their local area because they are

responsible for providing services for businesses like refuse collection and road building

and maintenance.

Stakeholders can exert influence on organisations in a variety of ways:

Ordinary shareholders have voting rights at the Annual General Meeting of limited

companies.

Managers have day-to-day decision-making powers.

Employees may take industrial action, such as strikes or working to rule, to persuade the

organisation to do what they want.

Suppliers can vary the period of credit and/or the level of discount offered to firms.

Customers influence firms by buying, or refusing to buy, their output. For example in

the 1980s some customers stopped buying Nestlé products in an attempt to deter the firm

from supplying powdered baby milk to third world countries.

Banks have the power to grant or withhold loans to firms and to set the rate of interest

charged.

The government can introduce laws to make firms carry out its wishes – for example, the

Sex Discrimination Act has made it illegal for firms to refuse to employ a man or a

woman simply because of their gender.

The community as a whole can persuade firms to do as it wants through pressure groups

such as Greenpeace, etc.

Donors can influence what charities do by altering the amount of money that they

donate. If a charity does something with which many donors do not agree, it may

receive less money from them.

Stakeholders Page 8

The local community can influence how businesses in their area behave through the local

newspapers (e.g. by writing letters for or against things the business has done); or

through protesting against a business’s decisions such as the closure of a factory.

Local government can influence business organisations through planning and other

legislation for which local government are responsible. They can also provide help

through the creation of suitable sites for businesses such as business parks.

Question 1

(Source: 2014 SQA Specimen Section 1 Question 1g)

Describe the interdependence of Sainsbury’s stakeholders identified in the

information provided. 2

Question 2

(Source: 2013 SQA Section 2 Question 5d)

Describe the interests stakeholders have in an organisation. 4

Question 3

(Source: 2010 SQA Section 1 Question 7b)

Describe the different interests 5 stakeholders may have in an organisation. 5

Question 4

(Source: 2009 SQA Section 1 Question 2b)

Describe how 5 different stakeholders could influence the organisation. 5

Question 5

(Source: 2007 SQA Section 1 Question 2)

The local council are carrying out a consultation exercise with stakeholders. Describe

how 4 different stakeholders of the local council could influence the council’s future

plans. 4

Question 6

(Source: 2006 SQA Section 2 Question 3bii)

Describe one interest each of the following stakeholders has in an organisation’s information.

• Inland Revenue

• Employees

• Creditors 3

Stakeholders Page 9

Question 6

(Source: 2006 SQA Section 2 Question 4di)

A large department store is finding it difficult to maintain profits. A hostile takeover has been

proposed by one of its competitors. Shareholders have been offered the opportunity to sell

their shares.

Describe the ways in which shareholders influence organisations. 3

Stakeholders Page 10

Task 1

Match the type of stakeholder to each example of interest given. Choose from: Type of stakeholder A) Owner - private shareholders B) Non managerial staff C) Government D) Senior management staff E) Trade unions F) Customers G) Creditors H) Local community

Examples of interest 1. VAT 2. environmental issues 3. financial return 4. minimum wage 5. direction 6. quality 7. liquidity 8. job security 9. customer care 10. jobs 11. value 12. taxation 13. working conditions 14. rates of pay 15. profit 16. involvement 17. credit score 18. targets 19. legislation 20. new contracts 21. performance

Stakeholders Page 11

Task 2

(Source: Higher Business Management with Answers by Peter Hagan and Alistair B Wylie, Page 33, Question 11)

(a) What is a stakeholder in business?

(b) Give 3 examples of stakeholders in business.

(c) What kind of influence may stakeholders be able to exert on business?

(d) Complete the following table by inserting an example for each type of business.

The first row has been completed as an example.

TYPE OF

ORGANISATION

EXAMPLE OF

STAKEHOLDER

EXAMPLE OF

INFLUENCE

Sole Trader Owner Owner’s motivation to

succeed

Partnership

Private Limited Company

Public Limited Company

Voluntary Organisation

Charity

Public Corporation

Government-funded

Service Provider

Local Government-funded

Provider

Activity 5

(a) Identify at least 3 examples of stakeholders in 2 different types of organisation.

Identify and explain 3 reasons why their aims might conflict.

Stakeholders Page 12

Task 3 – Stakeholder interest and conflict

1. BT/Shell/Co-operative; comparisons of how they balance stakeholder interests

and resolve conflict.

http://businesscasestudies.co.uk/bt/stakeholders-as-

partners/introduction.html#axzz2gb3ow8x7

http://businesscasestudies.co.uk/shell/balancing-stakeholder-

needs/introduction.html#axzz2gb3ow8x7

http://businesscasestudies.co.uk/co-operative-food-group/ethically-serving-

stakeholders/introduction.html#axzz2gb3ow8x7

2. Reed Elsevier Case Study from Times 100 No 17. Conflict between stakeholders.

http://businesscasestudies.co.uk/reed-elsevier/corporate-responsibility-and-

stakeholders/introduction.html#axzz2gb3ow8x7

Stakeholders Page 13

Task ? – Stakeholders

Definition: Stakeholders are individuals or groups of people who have an interest in,

and stand to be affected by, the success or failure of an organisation.

Who are the stakeholders in a school?

Stakeholder Interest

Are the interests of these stakeholders the same?

Stakeholders Page 14

Who might be the stakeholders in a limited company?

Take each of the above stakeholders and say what their interests might be:

Stakeholder Interest

In what ways might the interests of these stakeholders conflict?

Stakeholders Page 15

Task 5 – Henley Garden Centre

Henley Garden Centre is owned by Sandra Thompson who is retired and lives in

Venice. She employs a manager who has an assistant to help run the business.

The manager concentrates on finance and administration while his assistant is

responsible for production, selling and staff. Thirty staff are employed in the

large garden centre and they have just been offered a 4% wage increase. They

had requested a 13% pay rise on the grounds that in the previous 2 years they

had agreed to a pay freeze. The staff are very angry with this final offer and

they have all agreed not to work at weekends. The management have always

been unpopular with the employees because they feel that they are being

exploited. For example, the manager and the assistant manager both drive

company BMWs and take it in turns to take time off to play golf 3 times a week.

However, since the owner lives abroad, is reasonably satisfied with the profit

made by the company and is not entirely aware of the circumstances, the

situation is unlikely to change.

1 Identify possible sources of conflict between the management and the employees.

2 How might the conflict between the management and employees affect the

business?

3 Explain whether there might be a conflict in this case between the owner and

management.

4 Which stakeholder would have the most to lose if the business were to collapse?

Explain your answer.