Stakeholders individuals or groups that may hold interest in the business or may be affected by its decisions.
We distinguish between two groups of stakeholders:
Internal stakeholders who are directly involved in the running of the business;
External stakeholders who are indirectly involved in the running of the business or are simply affected/interested in its activity.
The interests of internal stakeholders
Owners or shareholders put up the capital which runs the business. The reward is the gain they make from owning the business. If there was no reward, no one would bother to invest.
Directors and senior management in small businesses, the owners are quite likely to be involved in the daily running of the business. This is not in case in bigger companies, where a board of directors may be involved and monitor the business’ activities. The performance of the business has a direct impact on them — if the business performs poorly, they might be made redundant. If the business performs well, they might be promoted or receive bonuses.
Employees are involved in daily activities and bring projects to life. If the business underperforms, employees are often the first to fall victim and get dismissed. If the business performs well, they might be promoted or receive bonuses.
The interests of external stakeholders
Suppliers: businesses depend on suppliers for resources otherwise production may be reduced.
Customers: one of the most important external stakeholders. Businesses need customers to sell goods and services in order to remain operational. Additionally, many customers depend on the goods and services provided by businesses.
Communities: businesses could play important roles in a community’s development by supporting charities, collaborating with schools or expanding projects to create jobs.
Pressure: groups they are interested in the business as they attempt to influence its decision making processes (e.g., forcing the local council to act against industrial pollution).
Competitor: other firms operating in the same market want to observe their competitors in order to predict future activities and to react accordingly.
Government: legal institutions are interested in a company’s lawful conduct. For example, they could inspect a business’ licenses or tax records.
Mutual benefit and conflict between stakeholders’ interests
Conflicts may arise when there are many stakeholders, each with different objectives. For example, there might be a conflict between customers and shareholders as customers want the highest quality products for more affordable prices. Spending more on research and development to create new products might lower the amount payable in dividends to shareholders. Improving quality might also lead to higher costs and lower profits, directly affecting shareholders.
As it is impossible to satisfy all stakeholders simultaneously, businesses need to focus on the ones that are important to them. In order to determine which stakeholders need to be satisfied, businesses compile a stakeholder analysis: visualising which stakeholders have the most interest in the company’s activities, and which have the most influence over the company.
Example of a stakeholders analysis showing the interest and power of four stakeholders: government, pressure groups, consumers and suppliers.
