A stakeholder is any individual or organisation that is affected by the activities of a business. They may have a direct or indirect interest in the business, and may be in contact with the business on a daily basis, or may just occasionally. The main stakeholders are: Shareholders (not for a sole trader or partnership though) – they will be interested in their dividends and capital growth of their shares. Management and employees – they may also be shareholders – they will be interested in their job security, prospects and pay. Customers and suppliers. Banks and other financial organisations lending money to the business. Government – especially the Inland Revenue and the Customs and Excise who will be collecting tax from them. Trade Unions – who will represent the interests of the workers. Pressure Groups – who are interested in whether the business is acting appropriately towards their area of interest. Stakeholders v Shareholders It is important to distinguish between a STAKEHOLDER and a SHAREHOLDER. They sound the same – but the difference is crucial! Shareholders hold shares in the company – that is they own part of it. Stakeholders have an interest in the company but do not own it (unless they are shareholders). Often the aims and objectives of the stakeholders are not the same as shareholders and they come into conflict. The conflict often arises because while shareholders want short-term profits, the other stakeholders' desires tend to cost money and reduce profits. The owners often have to balance their own wishes against those of the other stakeholders or risk losing their ability to generate future profits (e.g. the workers may go on strike or the customers refuse to buy the company's products). Social Responsibility Social responsibility is the duty and obligation of a business to other stakeholders.
 Social responsibility for one group can conflict with other groups, especially between shareholders and stakeholders. Ethics Ethics refers to the moral rights and wrongs of any decision a business makes. It is a value judgement that may differ in importance and meaning between different individuals. Businesses may adopt ethical policies because they believe in them or they believe that by showing they are ethical, they improve their sales. Two good examples of businesses that have strong ethical policies are The Body Shop and Co-Op. Some examples of ethical policies are:
A stakeholder is a party that has an interest in a company and can either affect or be affected by the business. The primary stakeholders in a typical corporation are its investors, employees, customers, and suppliers. However, with the increasing attention on corporate social responsibility, the concept has been extended to include communities, governments, and trade associations.
Stakeholders can be internal or external to an organization. Internal stakeholders are people whose interest in a company comes through a direct relationship, such as employment, ownership, or investment. External stakeholders are those who do not directly work with a company but are affected somehow by the actions and outcomes of the business. Suppliers, creditors, and public groups are all considered external stakeholders.
Stakeholder capitalism is a system in which corporations are oriented to serve the interests of all of their stakeholders. Investors are internal stakeholders who are significantly impacted by the associated concern and its performance. If, for example, a venture capital firm decides to invest $5 million in a technology startup in return for 10% equity and significant influence, the firm becomes an internal stakeholder of the startup. The return on the venture capitalist firm's investment hinges on the startup's success or failure, meaning that the firm has a vested interest. External stakeholders, unlike internal stakeholders, do not have a direct relationship with the company. Instead, an external stakeholder is normally a person or organization affected by the operations of the business. When a company goes over the allowable limit of carbon emissions, for example, the town in which the company is located is considered an external stakeholder because it is affected by the increased pollution. Conversely, external stakeholders may also sometimes have a direct effect on a company without a clear link to it. The government, for example, is an external stakeholder. When the government initiates policy changes on carbon emissions, the decision affects the business operations of any entity with increased levels of carbon. A common problem that arises for companies with numerous stakeholders is that the various stakeholder interests may not align. In fact, the interests may be in direct conflict. For example, the primary goal of a corporation, from the perspective of its shareholders, is often thought to be to maximize profits and enhance shareholder value. Since labor costs are unavoidable for most companies, a company may seek to keep these costs under tight control. This is likely to upset another group of stakeholders, its employees. The most efficient companies successfully manage the interests and expectations of all their stakeholders.
It is a widely-held myth that public corporations have a legal mandate to maximize shareholder wealth. In fact, there have been several legal rulings, including by the Supreme Court, brought on by other stakeholders, clearly stating that U.S. companies need not adhere to shareholder value maximization. Shareholders are only one type of stakeholder. All stakeholders are bound to a company by some type of vested interest, usually for the long term and for reasons of need. A shareholder has a financial interest, but a shareholder can also sell their stock in the company; they do not necessarily have a long-term need for the company and can usually get out at any time. For example, if a company is performing poorly financially, the vendors in that company's supply chain might suffer if the company limits production and no longer uses its services. Similarly, employees of the company might lose their jobs. However, shareholders of the company can sell their stock and limit their losses.
Examples of important stakeholders for a business include its shareholders, customers, suppliers, and employees. Some of these stakeholders, such as the shareholders and the employees, are internal to the business. Others, such as the business’s customers and suppliers, are external to the business but are nevertheless affected by the business’s actions. These days, it has become more common to talk about a broader range of external stakeholders, such as the government of the countries in which the business operates, or even the public at large.
In the event that a business fails and goes bankrupt, there is a pecking order among various stakeholders in who gets repaid on their capital investment. Secured creditors are first in line, followed by unsecured creditors, preferred shareholders, and finally owners of common stock (who may receive pennies on the dollar, if anything at all). This example illustrates that not all stakeholders have the same status or privileges. For instance, workers in the bankrupt company may be laid off without any severance.
Stakeholders in a business include any entity that is directly or indirectly related to how a company operates, whether it succeeds, or if it fails. First the owners of the business. These can include actively-involved owners as well investors who have passive ownership. If the business has loans or debts outstanding, then creditors (e.g., banks or bondholders) will be the second set of stakeholders in the business. The employees of the company are a third set of stakeholders, along with the suppliers who rely on the business for its own income. Customers, too, are stakeholders who purchase and use the goods or services the business provides.
Stakeholders are important for a number of reasons. For internal stakeholders, they are important because the business’s operations rely on their ability to work together toward the business’s goals. External stakeholders on the other hand can affect the business indirectly. For instance, customers can change their buying habits, suppliers can change their manufacturing and distribution practices, and governments can modify laws and regulations. Ultimately, managing relationships with internal and external stakeholders is key to a business’s long-term success.
Although shareholders are an important type of stakeholder, they are not the only stakeholders. Examples of other stakeholders include employees, customers, suppliers, governments, and the public at large. In recent years, there has been a trend toward thinking more broadly about who constitutes the stakeholders of a business. |
What are the Organisations obligations to these stakeholders?
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