Business Stakeholders: Identification and Management

Defining Stakeholders

A stakeholder is any individual or group of individuals who has a direct interest in a business because the actions of the business affect them directly.

Types of Stakeholders

Stakeholders can generally be categorized into two main types:

• Internal Stakeholders: Individuals or groups that work within the business.
• External Stakeholders: Individuals or groups that are outside the business.

Note: In practice, employees are considered internal stakeholders because they are part of the business. However, as members of society, they can also be viewed as external stakeholders due to broader societal impacts.

Internal Stakeholder Groups

These individuals and groups operate within the organization:

• Shareholders
• The CEO or Managing Director
• Senior Managers
• Middle Managers
• Foremen and Supervisors
• Employees and their unions

External Stakeholder Groups

These individuals and groups are outside the immediate structure of the business:

• Government (at all levels)
• Suppliers
• Customers and Consumers
• People in the local community
• Financiers
• Pressure Groups
• The Media

Competitors and Shareholders

Competitors are the rival businesses of an organization.

Shareholders are a powerful stakeholder group as they have voting rights and a 'say' in how the company is run. They invest money in a company by purchasing its shares.

It is important to remember that shareholders are always stakeholders, but stakeholders are not always shareholders.

Stakeholder Conflict

Conflict often arises among different stakeholder groups due to their varied interests. A business cannot simultaneously meet the needs of all stakeholders, leading to potential disagreements. Other sources of conflict include:

• Some stakeholders having more than one role (e.g., managers are also employees).
• A common cause is the remuneration (pay and benefits) of the company directors.

Power-Interest Model

The Power-Interest Model helps businesses categorize stakeholders based on their power and interest levels, guiding how to manage their expectations and involvement:

Group A (Minimal Effort)   Group B (Keep Informed)   Group C (Keep Satisfied)   Group D (Key Players)
ß---- Least Important ----------------------------------------------------------------- Most Important ---à
                                 To the Business

Review Questions

1. Explain the difference between internal and external stakeholders:
   • Internal: Individuals or groups that work within the business.
   • External: Individuals or groups that are outside the business.
2. What is the difference between stakeholders and shareholders?

   Limited liability companies are owned by shareholders. This stakeholder group invests money in a company by purchasing its shares.

   Shareholders are a powerful stakeholder group as they have voting rights and a 'say' in how the company is run.

3. Explain why employees are often considered to be key stakeholders in an organization.
4. Distinguish between a director and a manager of a company.
5. How might pressure groups affect the success of a business?
6. Outline the sources of stakeholder conflict in a business.
7. How might businesses resolve conflict in the workplace?