Business ownership: stakeholders - CCEA

Key facts about stakeholders:

Stakeholders: Internal (eg managers, employees) and external (eg customers, suppliers) groups interested in a business's activities.

Objectives: Different stakeholders have varying goals, which can lead to conflicts (eg profit vs. job security).

Impact: Business decisions affect stakeholders differently (eg new store impacts profits, job opportunities, and local traffic).

Influence: Stakeholders' influence varies; owners have the most impact, while employees, customers, and governments also play significant roles.

A stakeholder is any person, group of people or other organisation that has an interest in the activities of a business.

Businesses need to be aware of their stakeholders, as many of them will be affected by its activities. Stakeholders can also influence the decisions that a business makes.

Internal stakeholders work within a business, either making decisions or carrying them out. External stakeholders do not work within a business but are affected by its activities.

There are eight main types of stakeholder:

It is important to distinguish between a stakeholder and a shareholder. Shareholders hold shares in a business, which means they own part of it and stakeholders have an interest in a business but do not own it (unless they are also shareholders).

All stakeholder groups have an impact on a business, but some will have more impact than others, giving them more power and influence on the activities of the business.

Different stakeholders will expect different things from a business. Given their different interests in the business, sometimes their expectations can cause conflict. The business has to balance these various interests.

Some examples of the different priorities of stakeholder groups:

• shareholders and owners want to ensure the business is successful and are interested in how much profit the business can make
• managers want a good salary and opportunities for further career progression
• employees want good levels of pay, job satisfaction and job security, and may also be interested in career progression
• customers want good quality and a range of products at reasonable prices
• suppliers want to receive payments on time, and regular orders
• the local community (people living in the area) may be looking for work, which local businesses can provide
• pressure groups want to increase knowledge of their cause, eg if a business is going to increase traffic pollution in their area
• the government wants businesses to create more jobs to raise more money from taxes and save money on benefit payments

The activities of a business will affect all stakeholders but some might be more affected than others. For example, if a retail business makes the decision to expand by opening a new store, this will have an impact on all the different stakeholders.

They may be affected in the following ways:

• Shareholders and owners may decide to grow the business and authorise opening new stores. They will expect to see sales increase over time. However, opening a new store will cost money, which may affect profits in the short term and could affect the amount of dividends they will receive.
• Managers take on additional responsibilities and set new targets. They may have opportunities for career progression, and they could become demotivated if they are not given such opportunities.
• Employees have increased job security as a business grows. They could also have opportunities for promotion to new roles. Some employees could feel resentful if they are not offered opportunities.
• Customers will benefit from having more choice about where to shop, but they may remain loyal to existing businesses. Through good marketing activity by the business, some may be tempted to try the new store.
• Suppliers benefit from increased orders to equip and stock the new store, which might lead to an increase in their profits. If they are unable to cope with the extra demand, there is a risk that the business will use other suppliers.
• The local community will benefit as a new store is likely to bring new jobs. However, they may be unhappy with increased traffic or noise.
• Pressure groups may protest against the new store if they feel their cause is adversely affected, eg if the store would increase pollution. This could deter other businesses from coming to the area.
• The government may be pleased to see new jobs being created and may expect to see increases in tax revenues as a result. However, other businesses could lose customers, which would reduce their profits and the tax they have to pay as a result.

All stakeholder groups have an impact on a business, but some will have more impact than others, giving them more power and influence on the activities of the business:

Different stakeholders may want different things from a business, which means that there could be conflict between them. Overcoming a conflict will often require negotiation and willingness to compromise.

The owners of a retail business decide to grant permission to extend the business’ opening hours on weekdays. Instead of being open from 8am to 8pm, the business will now be open from 7am to 10pm. The owners believe this will increase profits, but the decision is likely to cause conflict with the other stakeholders.

The owners will need to monitor the potential conflicts that could occur:

• managers might have to work longer hours
• employees may need to work different shifts, including working later
• some customers may want even longer opening hours, eg 24 hours a day
• suppliers could impact their customers by changing delivery routes and times
• the local community could be disturbed by increased traffic and noise
• pressure groups may be unhappy if longer opening hours are against their cause, eg groups promoting families spending more time together or improved work-life balance
• the government may require additional resources to monitor the impact on the local area, eg additional policing to deal with any shoplifting that takes place later in the evening

Read the case study below to help answer the following questions.

A steel factory in Omagh will close by the end of 2024, leading to 109 job losses. The factory, which has been in operation since 1921, produces components for the construction industry.

The decision to close is part of the company's strategy to consolidate operations and reduce carbon emissions. Production will be moved to a more modern facility abroad.

The managing director expressed regret over the closure and emphasized the company's commitment to ing affected employees. Assistance will include job placement services and retraining programs in collaboration with local employment agencies.

Consider:

1. Which stakeholders are affected by this closure?
2. How are they affected? Does it benefit them or hurt them?

Final check