Stakeholders in a business Chapter 5

Chapter Overview The different groups affected by business behavior The relationship between a business and these groups

stakeholder groups 5.1

Stakeholder Groups All businesses involve and affect many other people and groups by their activities Stakeholders are groups or individuals who have an interest in a business Shareholders are persons or organizations that own a part of a company

Who are the Stakeholders? Owners of the business (i.e. shareholders) Employees Managers that take tactical and strategic decisions Suppliers of goods and services Banks and other organizations that provide loans Customers who buy the products The government, which collects taxes and hopes for high levels of employment The local community

Who are the stakeholders? _____ are the people who work directly within the business. External stakeholders Shareholders Internal stakeholders When a business makes decisions, which group outside of the business is affected in some way? Customers Employees Owners When a company decides it will cut vacation time and increase production hours, which stakeholders will be most directly impacted? Industry associations Competitors

Who are the stakeholders? In pairs, choose a company and determine who the stakeholders are

Roles, rights and responsibilities of the Stakeholders Each stakeholder group will have their own objectives Employees want good rewards, job security, safe work environment, possibility of promotion Shareholders want financial rewards in return for risk to their investment Suppliers want to be paid on time The government will want the business to pay taxes on time

Roles, rights and responsibilities of the Stakeholders Each stakeholder has certain legal rights Employees have contracts of employment Owners/Shareholders must be kept informed of all activities Stakeholders also have responsibilities In return for wages, employees are expected to complete their tasks to a high standard In return for payment, suppliers should supply good quality products Businesses are in a two-way relationship with their stakeholders

Stakeholders Possible rights include Possible responsibilities include Employees To be treated fairly, to be paid fairly, to be kept informed To work effectively, to turn up for work on time Suppliers To be paid on time, to be informed of any potential changes in orders in the future To provide good quality products meeting the set specifications at the time set Owners/ shareholders To receive a share of profits, to be kept informed by management To treat management fairly Customers To be supplied the right quality products on time To pay on time Government To be paid taxes, to have businesses obey the law To protect businesses, customers, employees and the environment Managers To be rewarded appropriately for responsibilities, to have duties commensurate with seniority To carry out duties to best of ability, to be discrete in handling sensitive business data Lenders To be repaid promptly and on time Not to charge excessive interest rates or to withdraw loans without a reasonable period of notice The local community To live in an area that is free from excessive noise or other forms of pollution, to have a say in decisions which impact on the local community and to benefit from employment To cooperate with the business in its daily activities

Case study: gold fields Ghana engages stakeholders Explain why employees and customers might be Gold Fields Ghana’s major stakeholders. Discuss the extent to which Gold Fields Ghana may have benefited from holding its “stakeholder forum”.

the importance and influence of stakeholders 5.2

The interaction between a business’s decisions or actions and its stakeholders Any business decision can affect stakeholders Reducing the size of a business would affect employees Reduced profits would affect shareholders Increased orders would affect suppliers Expansion would affect community allowing for greater income to be earned Creation of more jobs would affect the government regarding taxes This impact can be both positive and negative Sometimes one group will benefit and another may suffer Cutting wages would benefit shareholders, but employees would suffer Outsourcing would benefit new country’s government, but current community would suffer

The interaction between a business’s decisions or actions and its stakeholders If stakeholders don’t like the changes, they can take various actions to avoid the effects of them Shareholders can sell their shares Banks can refuse to lend more or charge more for the business to borrow Employees can resign Employees can strike Suppliers can refuse to supply or demand better payment terms

Accountability to Stakeholders the extent to which an individual or a group is held responsible for a decision or a policy Social responsibility the philosophy under which businesses consider the interests of all groups in society as a central part of their decision-making

The Shareholder Concept Businesses have legal responsibilities to their stakeholders Laws on how products are promoted Laws on ingredients a manufacturer is able to use Some businesses will do the legal minimum and no more They focus mainly on rewarding their owners They will pay employees what they need to get the job done They will try to get the lowest cost for supplies (often times threatening to take their business elsewhere if they don’t get it) They will pay taxes, but invest no more in the local community The shareholder concept regards rewarding owners as the key business objective

The Shareholder Concept The owner of one or more shares of stock in a corporation is also known as a stockholder The benefits of being a shareholder include: receiving dividends for each share as determined by the Board of Directors the right to vote (except for certain preferred shares) for members of the board of directors to bring a derivative action (lawsuit) if the corporation is poorly managed to participate in the division of value of assets upon dissolution and winding up of the corporation, if there is any value

Milton friedman Famous economist who criticized all forms on government intervention in the economy Argued that governments should not impose a minimum wage Thought businesses would hire less of a more expensive resource Also held strong views on business objectives Businesses can best meet their social responsibilities by making the largest possible profit and using resources efficiently (legally) Believer in the shareholder concept

The Stakeholder Concept Businesses are increasingly trying to work with their shareholders and regard them more as partners Cooperative approach Better in the long term to treat stakeholders well Aligns with Corporate Social Responsibility Stresses benefits of treating stakeholders above what the law requires Paying suppliers fair price for their work Showing concern about employees careers and welfare Being environmentally friendly

Case study: hitachi Explain two ways in which Hitachi could claim to be a good corporate citizen. Discuss whether or not working with stakeholders helps Hitachi.

The Stakeholder Concept Businesses are made up of people with different opinions and views of what to achieve Any major decision will leave some stakeholders better off, and some worse This means almost any decision will be met with opposition from some stakeholders Every decision involves different stakeholders Managers must consider the power each stakeholder has More likely to listen to unions, investors who own 60% of the company, key suppliers, etc. Less likely to listen to individual employees, investor owning 1% of the company, supplier offering a product that’s not unique, etc.

Stakeholder map Groups in “D” are likely to influence decisions a lot Major investors Managers need to keep this group happy Stakeholders in “A” are not very interested and are not powerful Milk delivery service Local news agent

How Conflict Might Arise From Stakeholders Having Different Aims It might not be possible to please all groups all of the time Investors may push for lower costs to increase their profits May lead to lower pay for employees. In order to meet the demands of the stakeholders the business may need to relocate to cheaper production facilities overseas In order to meet government demands to be more environmentally friendly, a business might raise prices for the customers A business will have to juggle different demands and compromise

Case study: foxconn changes its working practices Explain why some of Foxconn’s stakeholders might not have approved of the changes that the company has implemented. Discuss whether Foxconn has taken the right decision by introducing these changes.

How Changing Business Objectives Might Affect Stakeholders As business objectives change, its relationship with stakeholders may change as well A demand for higher profits will always drive to reduce costs and less investment in training, welfare and career development A focus on better quality might lead to better treatment of suppliers A greater emphasis on being environmentally friendly may lead to more concern for society and focus on recycling, less waste, etc. It is very difficult for managers to make decisions to satisfy all stakeholders simultaneously Especially true at times of change when major strategic decisions may be forced upon them