BUSINESS STAKEHOLDERS

• Shareholders – “joint owners” of the business;they all own shares in the company = entitles them to a share in the profit,known as a dividend and a vote each year to elect the directors of the company.

• Traditionally firms have been operated for the benefit of their shareholders(the people who legally own the business).Therefore directors and managers took decisions aimed to optimise financial performance of the firm so as to generate the maximum profits thus allowing the shareholders to receive the greatest dividend

• A more recent approach is to consider the needs of stakeholers.These are all groups who have an interest in the success and operation of the business.So shareholders are an important stakeholder,but others include :

-Employees;their income depends on the firm’s continuing success

-Managers;both income and status come from the business

-Local community;the firm provides both local employment and consumers for other local businesses

-Customers

-Suppliers;their success requires the firm to keep buying inputs

-Creditors and the bank;a successful firm pays its debts

-Competitors;there may be shared suppliers,thus keeping input costs down for both firms

-National Government;successful firms create empolyment,pay taxes,generate export earnings

-Local Government;successful firms may attract other employers to the area,unsuccessful firms lay off workers whose social problems are the responsibility of local government

IMPLICATIONS OF THE STAKEHOLDER APPROACH

Promoting the interests of stakeholders above those of shareholders can be seen as damaging the short-term profitability of a business-it is difficult to please all of the people all of the time.Therefore there is the potential for conflict:

•Raising the wages or improving the conditions of workers increses costs and thus cuts into profits

•Paying suppliers a high price,or paying them promptly hurts both profits and improves the supplier’s cashflow at the expense of the firm’s

•Charging a low price may affect revenues and thus cut into profits

•Environmentally friendly production,benefiting the local community,adds to the costs of the firm and thus cuts into profits

However,the stakeholder approach can bring longer term benefits:

•A well paid workforce is often better motivated and more loyal

•Suppliers who are treated well may be more flexible when,say,a rush order is needed or there are problems with quality

•Customers who feel they are receiving value for money may become loyal,long term customers and persuade friends to also try the product

Sometimes these stakeholders come together to form pressure groups who seek to influence the firm’s activities:

•employees are represented by Trades Unions

•suppliers might be represented by a trade associations

•the local community might be helped by environmental groups

Pressure groups can operate on three levels:

•direct action,where the group attacks the firm directly

•encourage public action against the firm

•attempt to influence politicians to change policy or,as an “end-game”,persuade legislators to change the law