Stakeholders in a business

Welcome to the World of Stakeholders!

Ever wondered why a business doesn't just do whatever it wants? It’s because a business doesn't exist in a bubble. It is surrounded by people and groups who care very much about what it does. In this chapter, we are going to meet these "Stakeholders." Understanding them is the secret to understanding why businesses make certain decisions.

Don't worry if this seems like a lot of names to learn at first! By the end of these notes, you’ll see that you already know most of these people in your daily life.

1.5.1 Business Stakeholders

What is a Stakeholder?

A Stakeholder is any individual or group that has a direct interest in, or is affected by, the activities and decisions of a business.

Think of it like a stone thrown into a pond: the business is the stone, and the ripples it creates are the effects on the stakeholders. Some ripples are close (Internal), and some are far away (External).

Internal vs. External Stakeholders

We divide stakeholders into two main camps:

1. Internal Stakeholders

These are people inside the business. They are part of the daily operations.

• Employees: The people who do the work.
• Managers: The people who make the day-to-day decisions.
• Shareholders (Owners): The people who own the business (in a company) and want a profit.

2. External Stakeholders

These are people or groups outside the business who are still affected by it.

• Customers: They buy the products and want good quality and fair prices.
• Suppliers: They provide the raw materials and want to be paid on time.
• Government: They want the business to pay taxes and follow laws.
• Local Community: People living near the business who care about noise, pollution, and jobs.
• Banks/Lenders: They lend money and want to be sure it is paid back with interest.

Quick Review Box: Are you a stakeholder? Yes! If you buy a chocolate bar from a shop, you are a Customer (External). If you work there after school, you are an Employee (Internal).

Roles, Rights, and Responsibilities

Every stakeholder has a "give and take" relationship with the business. Let’s look at a few main ones:

1. Employees

• Rights: To be paid a fair wage and work in a safe environment.
• Responsibilities: To work hard and follow the business's rules.

2. Shareholders

• Rights: To receive a share of the profits (dividends) and vote on big decisions.
• Responsibilities: To provide the capital (money) to start and grow the business.

3. Customers

• Rights: To receive safe, high-quality products that match their description.
• Responsibilities: To pay for the goods and provide honest feedback.

Key Takeaway: Stakeholders aren't just "interested" in the business; they have a "stake" (a vested interest) in whether it succeeds or fails.

1.5.2 Relative Importance and Influence

Not all stakeholders have the same amount of power. A Shareholder usually has more influence than a single Customer, but a Government can pass laws that change everything for the business!

Stakeholder Conflict: The "Tug-of-War"

Because different groups want different things, they often disagree. This is called Stakeholder Conflict.

The Classic Example: Wages vs. Profits

• Employees want higher wages (which increases costs).
• Shareholders want higher profits (which means keeping costs low).
• The conflict: If the business pays higher wages, profits might go down. If it keeps profits high, employees might be unhappy or go on strike.

Another Example: The Environment

• The Local Community wants the business to reduce pollution.
• Managers might find that environment-friendly machines are very expensive, which hurts the budget.

Memory Aid: SEC-G (Pronounced "Sexy") - Shareholders, Employees, Customers, Government. These are the "Big Four" that usually cause the most conflict!

Impact of Business Decisions on Stakeholders

When a business makes a move, stakeholders react. For example:

• Decision: The business moves its factory to a different country to save money.
• Reaction: Employees lose their jobs (Negative). Shareholders see higher profits (Positive). Local Community loses a source of income (Negative).

How Stakeholders Influence Decisions

Stakeholders aren't helpless! They can force a business to change its mind:

• Customers can stop buying products (Boycott).
• Employees can go on strike.
• Government can fine the business or change the law.
• Banks can refuse to lend more money.

Accountability: Why explain yourself?

A business needs to be accountable (responsible and transparent) to its stakeholders. If it hides information, it loses trust.
Example: A business that is open about its environmental impact (even if it's not perfect) often gains more respect from the local community than one that tries to hide it.

Did you know? Many modern businesses now use the Triple Bottom Line approach, where they measure success not just by Profit, but also by their impact on People (Stakeholders) and the Planet.

Common Mistakes to Avoid

1. Confusing "Shareholder" and "Stakeholder": Remember, all Shareholders are Stakeholders, but NOT all Stakeholders are Shareholders! (A customer is a stakeholder, but they don't own the company).

2. Thinking conflict is always bad: Conflict is natural. A good manager learns how to balance these needs so everyone is "happy enough" to keep the business running.

Final Summary Takeaway

A business is a web of relationships. Success depends on balancing the needs of internal groups (who run the business) and external groups (who allow the business to exist in society). When objectives change, the balance of power between these groups often shifts too!