3.4.3 Shareholders vs Stakeholders

Question 1

What are stakeholders?

Answer 1

• Individuals or groups that affect or are affected by the actions of a business

A business needs to take into account the needs & interests of its stakeholders in order to operate successfully & ensure long term success

Question 2

What is the difference between internal & external stakeholders?

Answer 2

Internal stakeholders are individuals or groups inside the business:
- Employees
- Managers and Directors
- Business owners

External stakeholders are individuals or groups outside of a business:
Customers
Shareholders
Creditors
Suppliers
Pressure groups
Local community

Question 3

What may be a stakeholder objective for the owner?

Answer 3

• Owners are likely to work within the business as well as own it & so will be relying on the business to provide an income

They will want all, or share of the profit & will want the business to succeed

(Internal SH)

Owners may be sole traders,partner in a business or a shareholder in private limited company

Question 4

What may be a stakeholder objective for an employee?

Answer 4

• Their primary objective is:
• To earn a living, have job security & be compensated fairly for their work
• & Have a safe working environment

(Internal SH)

Question 5

What may be a stakeholder objective for management?

Answer 5

• To meet the company’s goals & objectives
• They want to maximise profits & minimise costs while ensuring that the company operates efficiently

(Internal SH)

Managers are individuals who are responsible for the day-to-day operations of a company

Question 6

What stakeholder objectives may customers have?

Answer 6

• To receive high-quality products or services at a fair price

Customers also want good customer service and a positive experience with the company

(External SH)

Question 7

What stakeholder objectives may shareholers have?

Answer 7

• To maximise their returns on investment

They want the company to be profitable & generate a high return on their investment

Question 8

What stakeholder objectives may suppliers & creditors have?

Answer 8

• For the business to pay what it owes promptly & in full

Suppliers often want to be able to establish long-term arrangements with customers to improve business stability

Question 9

What is a stakeholder approach and what happens when a business takes a stakeholder approach?

Answer 9

• The business considers all of its stakeholders in its business decisions/objectives
• It has become good business practise to be socially responsible

This is likely to decrease profits as competing stakeholder needs may require solutions that involve increased costs
(e.g. meeting employees’ needs by paying higher wages will increase salary costs)

A business that adopts a stakeholder approach:
- Recognises the impact it has on a range of stakeholder groups
- Understands the impacts stakeholder groups can have on its operations
- Communicates effectively with stakeholder groups
- Tries to minimise the negative impacts of business operations on stakeholder groups where possible

Question 10

What is a shareholder approach and what happens when a business takes a shareholder approach?

Answer 10

• Shareholder approach has often used by large corporations & is focused on meeting the needs of shareholders
• Maximising profits in order to increase dividends & improve the share price

Question 11

Give some examples of business influence on stakeholders & stakeholder influences on business.

Answer 11

Examples of Business Influences on Stakeholders
- If a business experiences financial difficulties, shareholders may lose value in their investments, and employees may face job losses or pay cuts
- Customers can be affected by business activity in terms of product availability, quality, and pricing

Examples of Stakeholder Influences on Business
- Shareholders can impact business activity through their investment decisions and demands for returns
- The government can impact business activity through taxes, regulations (laws), and subsidies
- Employees can impact business activity through their productivity, skills, and job satisfaction

Question 12

What are the potential conflicts between shareholders & employees?

Answer 12

• Shareholders aim to maximise the return on their investment, which usually requires the business to make as much profit as possible
• Employees aim for higher wages & better conditions, which is likely to increase costs and reduce profits

Question 13

What are the potential conflicts between shareholders & customers?

Answer 13

• Customers aim for fair (or low) prices as well as good customer service
• As shareholders demand high profits to achieve maximum dividends, there is pressure on businesses to raise prices

Business has to decide who they want to please- customers or shareholders

Question 14

What are the potential conflicts between shareholders & management?

Answer 14

• Management aims to run the business effectively & ensure it pleases its shareholders
• Management may recommend the decision to retain profits to invest & grow the business rather than issue it to shareholders as dividends

Question 15

What are the potential conflicts between shareholders & the government?

Answer 15

• Governments want businesses to create good quality jobs whilst complying with laws & tax contributions
• Shareholders are less interested in job creation & more interested in profit maximisation

USE 3.4.3 AS A PART OF MOPS