UNIT 28 Business Decisions and Stakeholders

Objectives Understand that stakeholders are those groups or individuals with an interest in a business Recognise that business decisions have different effects on different stakeholders Appreciate the problems a business may face in meeting the demands of all stakeholders

Glossary of terms Stakeholder – an individual or a group which has an interest in and is affected by the activities of a business; stakeholders have an interest in how the business operates and whether or not it is successful

Case Study Quemby Recycling Ltd is a small private limited company. Its core business is the recycling of automotive waste. This is waste associated with cars and lorries. Waste includes old tyres, batteries, brake fluid, antifreeze and engine oil. Tyres, for example, can be recycled into large rubber bowls. Quemby offers garages and tyre fitters a collection service. For a fee, it will pick up automotive waste from a site and then dispose of the waste in accordance with the latest government regulations.

Stakeholders

All businesses, including Quemby Recycling, have a number of different stakeholders. A stakeholder is an individual or a group that is affected by the business. Stakeholders therefore have an interest in how the business operates and whether or not it is successful. Stakeholders include the following:

Owners The owners of a business want the business to be successful. Usually success means how much money the owners can make from the business. How much profit is the business making? How much income can the owners pay themselves through owning the business? Can the owners sell the business for more than they invested in it? Quemby Recycling is a private limited company. It is owned by two shareholders, husband and wife, Rob and Shirley Quemby. Their goal is to earn a good income for themselves now and sell the company at a high price when they retire.

Managers Quemby Recycling is a relatively small firm and Rob is the manager of the company. However, in some small companies, the shareholders appoint a manager to run the company on a day to day basis. Managers want the firm to be successful. If it not successful, they could lose their job. However, managers are also interested in their own rewards. They want a large salary. perhaps, they might also get a company car. So long as the firm is profitable and doing well, managers might be more interested in their own rewards than in squeezing an extra £1 of profit for the shareholders of the company.

Workers Quemby Recycling employs 9 workers. Like managers, they want the firm to be successful enough to keep them in a job and give them regular pay rises. However, workers want to have as large a wage as possible. They want good working conditions and a generous holiday entitlement. These all represent costs to a business and higher costs might mean lower profits. The objectives of workers might conflict with those of the owners who are seeking to make high profits.

Customers Customers are very important stakeholders. They want a firm to give them a good, reliable, quality product at a fair price. Quemby’s customers, for example, expect the firm to come to their premises on time and take away the waste that has been agreed. They have chosen Quemby because it gives them a competitive price on waste disposal. In return, Quemby expects its customers to pay them on time for the service that they provide.

Suppliers Suppliers are firms that sell products to another firm. Quemby’s suppliers include the electricity company that sells it electricity and the equipment manufacturer that sold it recycling equipment. Suppliers want their customer to continue buying from them.

Government There are various parts of government that are stakeholders in a firm like Quemby’s. Central government is a stakeholder because it taxes Quemby’s and expects it to collect taxes in its behalf, as well as, passing laws that all businesses have to abide by, such as, those covering equal opportunities and employment. Local government also imposes Business Rates on the company. Government agencies like the Health and Safety Executive monitor and inspect the company to make sure it keeps to the law.

The Local Community The local community has a stake in a firm like Quemby’s. On the one hand, Quemby’s provides jobs for local people. It also provides a service that local people want to see performed. They do not want garages to dump old tyres by the side of the road or throw contaminated oil down the drain. On the other hand, some local residents are worried about the pollution that Quemby’s might cause. No one wants to live near a recycling plant, especially if it is daling with potentially dangerous materials like rubber or acid from old car batteries.

Conflicting Objectives Businesses are constantly making decisions. However, each decision has different impacts on stakeholders. Some decisions benefit some stakeholders, other decisions benefit other stakeholders. Here are four examples of decisions that impact differently on the different stakeholders of Quemby’s:

Example 1 Quemby Recycling decides to expand Quemby’s sales are rising. The owners, Rob and Shirley Quemby, decide that now is a good time to expand. To do this, they would need to move to a larger site. For Rob and Shirley, expansion means a more successful business with larger profits. Suppliers are in favour because expansion potentially means more orders for them. However, two of the workers are unhappy because the new site would add anther 15 minutes to their journey time to and from work. Residents near the new site are strongly against the proposal. They are worried about possible pollution. On the other hand, residents near the existing site are very pleased because they will be getting rid of Quemby’s.

Example 2 Quemby Recycling puts up its prices to customers Costs for Quemby Recycling have been rising. New government regulations have forced it to buy some new equipment. Electricity prices have been rising. Workers also received a 2% wage rise. So the firm has decided to put up its prices to maintain profits. For the owners, this safeguards their income. For workers, it is a way in which the company can afford to give them the pay rise. However, it is bad news for customers who now have to pay more to have their waste recycled.

Example 3 Quemby Recycling refuses to give its workers a pay increase Quemby’s workers expect to get a pay rise each year. However, conditions have been difficult and profits at the firm have fallen. The owners have decided that they will not be giving their workers a pay rise. This benefits the owners because their profits would fall even further if they awarded a pay rise. On the other hand, the workers lose out. They now receive a lower wage than they would have done if they had received their usual pay rise.

Example 4 The government imposes new waste recycling requirements The government decides to tighten up on waste recycling. It means that Quemby’s has to buy new, more expensive equipment. The new processes also take longer and this means higher costs in terms of labour. The government is acting on behalf of the wider community. The community benefits because waste is recycled to a higher standard. However, Qumeby’s raises it prices to its customers. Ultimately, motorists have to pay higher charges to garages for the recycling. So motorists lost out.

Review Questions 1. What is meant by the term ‘stakeholder’? 2. List four examples of stakeholders of a nightclub. 3. Stakeholders are sometimes said to have ‘conflicting interests’. What does a conflict of interest mean? 4. A supermarket claims there has been a 20% increase in its online grocery shopping, mainly to small villages. How might this affect the following stakeholders? 5. Workers in the supermarket. 6. Competitors. 7. Residents in a small village. 8. Suppliers. 9. Shareholders in the supermarket. 10. The Government. 11. Explain how the supermarket could try and meet the demands of all its stakeholders.

Homework Unit 28 Homework