STAKEHOLDERS IN A Chapter 5

BUSINESS
 CHAPTER OVERVIEW

 The dif ferent groups af fected by business behavior

 The relationship between a business and these groups
STAKEHOLDER GROUPS 5.1
 STAKEHOLDER GROUPS

 All businesses involve and af fect many other people and

groups by their activities

 Stakeholders are groups or individuals who have an interest in

a business

 Shareholders are persons or organizations that own a part of

a company
 WHO ARE THE STAKEHOLDERS?

 Owners of the business (i.e. shareholders)

 Employees
 Managers that take tactical and strategic decisions
 Suppliers of goods and services
 Banks and other organizations that provide loans
 Customers who buy the products
 The government, which collects taxes and hopes for high
levels of employment
 The local community
 WHO ARE THE STAKEHOLDERS?

1. _____ are the people who work directly within the business.
1. External stakeholders
2. Shareholders
3. Internal stakeholders
2. When a business makes decisions, which group outside of
the business is af fected in some way?
1. Customers
2. Employees
3. Owners
3. When a company decides it will cut vacation time and
increase production hours, which stakeholders will be most
directly impacted?
1. Industry associations
2. Employees
3. Competitors
 WHO ARE THE STAKEHOLDERS?

 In pairs, choose a company and determine who the

stakeholders are
 ROLES, RIGHTS AND RESPONSIBILITIES
OF THE STAKEHOLDERS
 Each stakeholder group will have their own objectives
 Employees want good rewards, job security, safe work environment,
possibility of promotion
 Shareholders want financial rewards in return for risk to their
investment
 Suppliers want to be paid on time
 The government will want the business to pay taxes on time
 ROLES, RIGHTS AND RESPONSIBILITIES
OF THE STAKEHOLDERS
 Each stakeholder has certain legal rights
 Employees have contracts of employment
 Owners/Shareholders must be kept informed of all activities

 Stakeholders also have responsibilities

 In return for wages, employees are expected to complete their tasks
to a high standard
 In return for payment, suppliers should supply good quality products

 Businesses are in a two-way relationship with their

stakeholders
Stakeholders Possible rights include Possible responsibilities include

Employees To be treated fairly, to be paid fairly, to be kept To work effectively, to turn up for work on
informed time

Suppliers To be paid on time, to be informed of any To provide good quality products meeting the
potential changes in orders in the future set specifications at the time set

Owners/ To receive a share of profits, to be kept informed To treat management fairly

shareholders by management

Customers To be supplied the right quality products on time To pay on time

Government To be paid taxes, to have businesses obey the To protect businesses, customers, employees
law and the environment

Managers To be rewarded appropriately for To carry out duties to best of ability, to be

responsibilities, to have duties commensurate discrete in handling sensitive business data
with seniority

Lenders To be repaid promptly and on time Not to charge excessive interest rates or to
withdraw loans without a reasonable period
of notice

The local To live in an area that is free from excessive To cooperate with the business in its daily
community noise or other forms of pollution, to have a say activities
in decisions which impact on the local
community and to benefit from employment
 CASE STUDY: GOLD FIELDS GHANA
ENGAGES STAKEHOLDERS

1. Explain why employees and customers

might be Gold Fields Ghana’s major
stakeholders.

2. Discuss the extent to which Gold Fields

Ghana may have benefited from holding
its “stakeholder forum”.
THE IMPORTANCE AND
INFLUENCE OF 5.2

STAKEHOLDERS
 THE INTERACTION BET WEEN A BUSINESS’S
DECISIONS OR ACTIONS AND ITS STAKEHOLDERS

 Any business decision can af fect stakeholders

 Reducing the size of a business would affect employees
 Reduced profits would affect shareholders
 Increased orders would affect suppliers
 Expansion would affect community allowing for greater income to be
earned
 Creation of more jobs would affect the government regarding taxes

 This impact can be both positive and negative

 Sometimes one group will benefit and another may suffer
 Cutting wages would benefit shareholders, but employees would
suffer
 Outsourcing would benefit new country’s government, but current
community would suffer
 THE INTERACTION BET WEEN A BUSINESS’S
DECISIONS OR ACTIONS AND ITS STAKEHOLDERS

 If stakeholders don’t like the changes, they can take various

actions to avoid the ef fects of them
 Shareholders can sell their shares
 Banks can refuse to lend more or charge more for the business to
borrow
 Employees can resign
 Employees can strike
 Suppliers can refuse to supply or demand better payment terms
 ACCOUNTABILIT Y TO STAKEHOLDERS

 Accountability
 the extent to which an individual or a group is held responsible for a
decision or a policy

 Social responsibility
 the philosophy under which businesses consider the interests of all
groups in society as a central part of their decision -making
 THE SHAREHOLDER CONCEPT

 Businesses have legal responsibilities to their stakeholders

 Laws on how products are promoted
 Laws on ingredients a manufacturer is able to use

 Some businesses will do the legal minimum and no more

 They focus mainly on rewarding their owners
 They will pay employees what they need to get the job done
 They will try to get the lowest cost for supplies (often times
threatening to take their business elsewhere if they don’t get it)
 They will pay taxes, but invest no more in the local community

 The shareholder concept regards rewarding owners as the key

business objective
 THE SHAREHOLDER CONCEPT

 The owner of one or more shares of stock in a corporation is

also known as a stockholder

 The benefits of being a shareholder include:

 receiving dividends for each share as determined by the Board of
Directors
 the right to vote (except for certain preferred shares) for members of
the board of directors
 to bring a derivative action (lawsuit) if the corporation is poorly
managed
 to participate in the division of value of assets upon dissolution and
winding up of the corporation, if there is any value
 MILTON FRIEDMAN

 Famous economist who criticized all forms on government

intervention in the economy

 Argued that governments should not impose a minimum wage

 Thought businesses would hire less of a more expensive resource

 Also held strong views on business objectives

 Businesses can best meet their social responsibilities by making the
largest possible profit and using resources efficiently (legally)

 Believer in the shareholder concept

 THE STAKEHOLDER CONCEPT

 Businesses are increasingly trying to work with their

shareholders and regard them more as partners
 Cooperative approach
 Better in the long term to treat stakeholders well

 Aligns with Corporate Social Responsibility

 Stresses benefits of treating stakeholders above what the law
requires
 Paying suppliers fair price for their work
 Showing concern about employees careers and welfare
 Being environmentally friendly
 CASE STUDY: HITACHI

1. Explain two ways in which Hitachi could

claim to be a good corporate citizen.

2. Discuss whether or not working with

stakeholders helps Hitachi.
 THE STAKEHOLDER CONCEPT

 Businesses are made up of people with dif ferent opinions and

views of what to achieve
 Any major decision will leave some stakeholders better off, and some
worse
 This means almost any decision will be met with opposition from
some stakeholders

 Every decision involves dif ferent stakeholders

 Managers must consider the power each stakeholder has
 More likely to listen to unions, investors who own 60% of the
company, key suppliers, etc.
 Less likely to listen to individual employees, investor owning 1% of
the company, supplier offering a product that’s not unique, etc.
 STAKEHOLDER MAP

Groups in “D” are likely to influence

decisions a lot
• Major investors
• Managers need to keep this group
happy

Stakeholders in “A” are not very

interested and are not powerful
• Milk delivery service
• Local news agent
 HOW CONFLICT MIGHT ARISE FROM
STAKEHOLDERS HAVING DIFFERENT AIMS
 It might not be possible to please all groups all of the time
 Investors may push for lower costs to increase their profits
 May lead to lower pay for employees.
 In order to meet the demands of the stakeholders the business may
need to relocate to cheaper production facilities overseas
 In order to meet government demands to be more environmentally
friendly, a business might raise prices for the customers

 A business will have to juggle dif ferent demands and

compromise
 CASE STUDY: FOXCONN CHANGES ITS
WORKING PRACTICES

1. Explain why some of Foxconn’s

stakeholders might not have approved of
the changes that the company has
implemented.

2. Discuss whether Foxconn has taken the

right decision by introducing these
changes.
 HOW CHANGING BUSINESS OBJECTIVES
MIGHT AFFECT STAKEHOLDERS
 As business objectives change, its relationship with
stakeholders may change as well
 A demand for higher profits will always drive to reduce costs and less
investment in training, welfare and career development
 A focus on better quality might lead to better treatment of suppliers
 A greater emphasis on being environmentally friendly may lead to
more concern for society and focus on recycling, less waste, etc.

 It is very dif ficult for managers to make decisions to satisfy

all stakeholders simultaneously
 Especially true at times of change when major strategic decisions
may be forced upon them