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MEANING AND CONCEPT OF STAKEHOLDERS

Meaning of stakeholders

StakeholdersIndividuals and groups with a multitude of

interests, expectations, and demands as to what business should provide to society

Stakeholders

Stakeholders are groups or individuals with an interest in a business. Stakeholders may affect or be affected by the decisions of an organisation.

Examples of stakeholders include:• Owners/shareholders• Employees• Customers• Local community

Internal stakeholders

Internal stakeholders are those that can be considered to be part of an organisation.

The main internal stakeholders are:

• Shareholders/owners

• Employees

• Managers

Shareholders

Shareholders:

• own a part of a business

• do not get involved in the day-to-day running of the business

• have a right to vote at the company’s AGM

• receive a share of the profits – this is called a dividend

Shareholder interestsEach stakeholder group will have its own

expectations of the business.

Shareholders are likely to have an interest in:• Increased profits and hence dividends

through such things as:– Growth

– Enhanced reputation

– Greater efficiency

Employees

Employees:• are paid by a business to carry out given roles• are one of a company’s most important assets• help a business achieve its objectives• need a range of skills relevant to their job

roles e.g. teamwork and problem-solving

Employee interests

Employees are likely to expect:• fair pay• decent working conditions• job security

And maybe:• access to training for additional qualifications• a say in how the business is run

Managers

Managers:

• make decisions within an organisation

• are found at different levels within a business from supervisors and team leaders up to senior management

Manager interests

In addition to the usual employee interests, managers may expect to be able to make their own decisions and have the opportunity of promotion.

Stakeholder conflict

Conflict between the needs of stakeholder groups may occur, e.g. paying workers higher wages could result in lower dividends to shareholders.

External stakeholders

External stakeholders are outside an organisation.

The main external stakeholders are:

• Customers

• Government

• Suppliers

• The local community

Customer expectations

Customers are likely to expect such things as:• a product range that meets their needs• value for money• good quality products and customer service• a ready supply of goods and services

And possibly:• ecologically sound products

Government interests

The government has an interest in businesses because:• it receives taxes from business profits, employee

incomes and customer purchases• businesses provide jobs and therefore employment

levels and benefits payments are affected• the economy is dependent on the operations of

business• it has a range of legislation and regulations that

businesses must comply with

Supplier expectations

Suppliers may provide a range of services to

businesses, as well as raw materials and finished

goods.

Suppliers may expect:• to be paid in a timely fashion• to receive regular orders

Local community

The local community may have expectations about a

company regarding:• the availability of jobs• the level of pollution and congestion created• the support provided by a business

regarding community projects and concerns

Business expectations of stakeholders

Different stakeholders have their own interests and

expectations of a organisation, however, the business

will also have expectations of the stakeholders e.g.

Suppliers may be expected to comply with ethical and

environmental guidelines set down by the business.

Stakeholder conflict

Conflict between the needs of stakeholder groups may

occur e.g. the government may want to increase VAT

on the products sold by a business, which may lead to

higher prices for customers.

Stakeholder conflict

• Different stakeholder groups have different priorities– Shareholders require profits for their

dividends; customers want good prices – Training and development incurs costs;

what are potential drawbacks of not training employees?

– Investment in ‘green’ energy sources may be expensive but provide longer-term value

Benefits of a stakeholder focus

• ‘Valuing People’ means:– Employees are

encouraged, involved and motivated

– Improved efficiency, cost-effectiveness, satisfied customers

– Customers are listened to so products and services meet their needs

• Community activity makes a difference to societies around the world– Demonstrates Reed

Elsevier’s ethical stance

– Attractive to investors and potential employees

Principles of Stakeholder Management• Acknowledge • Monitor• Listen• Communicate• Adopt• Recognize• Work• Avoid• Acknowledge conflict

Principles of Stakeholder Management

Business Environment

• External environment– Societal ( macro ), influence the entire

businesses in the same way and magnitude

– Stakeholders, do not influence the business in the same way and magnitude

• Internal environment

Internal Environment

Identify strength and weaknesses for responding to the external environment

• Corporate Structure– The way of the corporation is organized in term

of authority, work and information flow, communication

• Corporate Culture– The collection of beliefs, expectation and

value, shared by its members– Produce norms that shape the behavior of

employees• Corporate Value

– Explain the action taken with respect to an issue

• Corporate Resources

External Environment

Identify opportunities and threats for survival and future success

BusinessFirm

Economic

Politic Social

Technology

•Interest rate•Unemployment•Inflation,GNP•Poverty Rate, etc

•Demographic•Life style•Population Growth•Age Distribution•Social Value, etc

•Political relationship, processes, changes

•Stability of Government •Regulation & Legal aspect

•Social Value, etc

•Product & Process•Innovation

•Scientific Discovery•Etc

Legal factors affecting business environment

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Legal Environment of Business• Every aspect of business is regulated by law in India. Legal system of a country

has a profound impact on decisions concerning both investment and operations in business as it touches the very existence and legality of business firms. Hence legal environment plays a vital role in business.

The broad areas covered by business legislation include: - • industrial licensing, company formation, factory administration, industrial

disputes, payment of wages, trade unionism, monopoly control, forex regulation, shops and establishment, product counterfeiting, gray markets, taxes etc.

• Industrial development and regulation – licensing and registration of industries; prices and output regulation, mergers, acquisitions and takeovers, location of industries;

• Forex management• Consumer protection – covering consumer rights, consumer disputes, complaints

and grievance redressal system;

Essential commodities – their supplies, prices, and qualityWeights, measures and packaging – standard units, packaging norms, declarations and inspection.Patents & copyrights– application procedure, life of a patent, rights of patent / copyright owners, infringement of patents / copyrights, claim procedure and settlement;

Labour – employment norms / rules, employee insurance, payment of wages / salaries, bonuses / gratuity / PF, disciplinary matters, disputes;

Changes in legal environment are caused by legislative changes / amendments / and introduction of new laws. Business firms are also affected by the speed with which justice is delivered. Professionally managed companies give importance to

legal conformity in their business operations.

Political factors

• Political environment refers to the influence exerted by the three political institutions: legislature, executive and judiciary in shaping, directing, developing and controlling business activities.

• A stable and dynamic political environment is prerequisite for the growth of business.

• Type of political system and its attitude towards business also matters a lot. The philosophy and approach of political party in power substantially influences the business environment.

• Businesses have several risks associated with the political scenario:

Confiscation, Expropriation, Nationalization, Domestication, General Instability risk, Operation risk, Transfer risk.

The risk is higher in absolutist, command economies. And also in countries passing through economic, social or political crises. 29

1. Consfication: when government forcibly possess ownership of a property without compensation.

2. Expropriation: forcible possession of ownership by the govt. followed by some compensation, which may not equal to market value of the property.

3. Nationalisation: Also a compulsive process of transfer of ownership and operations from private to public (govt.) hand. Compensation more rational. E.g. nationalisation of commercial banks in India in 1969.

4. Domestication: when a foreign company is made to transfer, fully or partly, ownership and control of its domestic affiliate to domestic nationals. In India under FERA (1973) the MNCs were forced to dilute 40 % of their equity in their Indian affiliates to Indian public / institutions.

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1. General Instability Risk: uncertainty with regard to the viability of the existing political system.

2. Operation risk: The risk arising from the possibility that the govt. might in future restrict the operations of the firm in marketing, finance, production, or in certain geographical locations.

3. Transfer risk: It arises from the possibility of any future act of the govt. by which it restricts transactions or transfer of funds or profits between subsidiaries of a firm or from a subsidiary to the parent company. The risk is more prominent in cases where the subsidiary and its parent are located in different countries.

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