Stakeholders and Their Objectives
Who Stakeholders Are
Stakeholder: any person or group with an interest in a business, because its decisions affect them or their decisions affect it.
The spec also calls stakeholders economic agents: households, firms and the government, each making decisions about scarce resources. One person can be several stakeholders at once, such as a supermarket worker who also shops there. Shareholders are only one kind of stakeholder, so keep the two words apart in answers.
Stakeholders are usually split into two groups:
- Internal stakeholders are inside the business: owners, managers and employees.
- External stakeholders are outside it but still affected: customers, suppliers, lenders, the local community and the government.
Stakeholder Objectives
Each group wants something different from the business.
| Stakeholder | Type | What they want |
|---|---|---|
| Owners and shareholders | Internal | Profit, dividends and a rising share price. Sole traders also want a decent income and some independence. |
| Managers | Internal | Higher salaries and bonuses, promotion, status and job security, often linked to how big the business grows. |
| Employees | Internal | Good pay, safe working conditions, training, and confidence that their job will still be there next year. |
| Customers | External | Low prices, good quality, reliable service and a choice of products. |
| Suppliers | External | Regular orders, fair prices and being paid on time. |
| Lenders | External | Interest paid and loans repaid in full, so they want the business to stay solvent. |
| Local community | External | Local jobs and spending, with as little noise, traffic and pollution as possible. |
| Government | External | Tax revenue, employment and growth, and firms that obey the law on wages, safety, competition and the environment. |
Stakeholder Conflicts
A business cannot give every group everything it wants, because its resources are scarce. More for one stakeholder often means less for another. Common clashes:
- Shareholders and employees over pay: pay rise → higher wage costs → lower profit → smaller dividends. Automated checkouts run the chain the other way: a lower wage bill and higher profit for shareholders, but fewer jobs for staff.
- The firm and the local community over expansion: new distribution warehouse → local jobs, but also lorries on village roads and lost green space → residents oppose the planning application.
- Customers and shareholders over price: price rise → wider margins → higher profit and dividends for owners, but customers pay more for the same product.
- Shareholders and managers over objectives: managers chase growth or their own pay → spending that makes the firm bigger but not more profitable → lower returns for owners. This is the principal-agent problem from business objectives.
How serious a conflict is depends on:
- How well the business is doing: a firm that is growing can pay higher wages, more tax and bigger dividends all at once.
- The time period: a pay rise costs profit now, but satisfied customers and staff tend to make a business more profitable in the long run.
- Power: where there is a clash, the group with the most power usually wins. Shareholders can vote out directors, a trade union can threaten strike action, and the government can pass laws.
Corporate Social Responsibility
Corporate social responsibility (CSR): a business taking account of the effects of its decisions on society and the environment, and not just on its owners, beyond what the law requires.
Examples include paying suppliers in developing countries a fair price, cutting packaging and carbon emissions, and funding local projects.
| Arguments for CSR | Arguments against CSR |
|---|---|
| A good reputation attracts customers, some of whom will pay more for ethical products. | It raises costs, which means lower profit or higher prices. |
| It helps recruit and keep staff who care about how their employer behaves. | A business's job is to make a profit within the law. Spending shareholders' money on causes they did not choose is unfair to them. |
| Acting before the law forces it can head off tougher regulation later. | Some firms exaggerate their good deeds for publicity, known as greenwashing when the claims are environmental. |
Whether CSR pays off depends on the business. It is easier to justify for a well-known brand whose customers notice how it behaves than for a small firm competing only on price.
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