IB Business & Management (HL + SL) Stakeholders 11/11/2009 Topic 1.4 Stakeholders Mrs. Radia Ali -- Bahrain Bayan School

Introduction Internal Stakeholders External Stakeholders Stakeholders: “People & organizations with an interest in a business.” Types: Internal Stakeholders Employees Managers Shareholders External Stakeholders Suppliers Customers Special Interest Groups Competitors Government

Internal Stakeholders (1) Employees Their career & livelihood depends on the organization’s existence & development. If the organization is successful the employees hope to share in that success. The role of employees in business has begun to change in recent years: They have had to cope with the introduction of new technology. Encouraged by some companies to participate more in problem solving & decision making (usually in teams). Have become more flexible and have adapted to the introduction of new working practices. Increased emphasis has been placed on training & learning new skills.

(2) Managers Continued… Include the employees who run the business (includes directors). They would be eager to know & be rewarded if there were plans to sell the organization or float it on a stock market. Their jobs depend on the success of the organization. In small businesses  the owner is usually responsible for all managerial tasks. When a business grows  the responsibility for some decision making is often delegated to others. WHY? Common functions of managers in a business: Organization & decision making Planning & control Accountability Entrepreneurial role

(3) Shareholders Continued… Have the ultimate stake in a company because by holding shares they own it! Are considered as “joint owners” of the business. Some organizations are not companies, and thus do not have shareholder stakeholders. Directors  elected by shareholders each year and are responsible for running the business. Managers  are appointed by directors and are actively involved in running the business. Employees  many own shares in the company + motivated by owning shares as bonuses. Individuals  can buy shares through stockbrokers. Institutional Investors + other companies  own shares to earn income

External Stakeholders (1) Suppliers Businesses that provide resources which allow other businesses to produce goods / services. It is important for good relations to exist between the business & its suppliers because they rely on each other. Suppliers want businesses to: Provide a constant flow of profitable orders Pay on time Businesses want suppliers to: Provide good quality resources at reasonable prices Be reliable & flexible

(2) Customers Continued… Buy the goods & services that businesses supply. May be individuals or other businesses. Businesses should provide goods & services demanded by the customers. Customers relationships with businesses: Contact between businesses & customers takes place when goods/services are bought. Businesses need to communicate with their customers to know what they want (market research). Businesses pass on information about their products to the customers (advertisement). Customers have more right and protection than 50 years ago. Customers have more income and are more aware of the products.

(3) Special Interest Groups Continued… (3) Special Interest Groups Bankers Lend money to companies; May offer “repayment holidays” to help companies with cash flow problems; May increase interest charges on companies if they are worried about the organizations solvency. Environmentalists Being “green” is expensive, yet it helps an organization's market share; Will lobby & pressure businesses & politicians. Community Action Groups Sometimes citizens & communities become involved in protects & dictate business changes. EXAMPLE

Continued… (4) Competitors Are interest in knowing the other business’s expansion & development plans, as well as how these plans may affect them. Example: MARS Ice cream

(5) Government Want businesses to flourish because: Continued… (5) Government Want businesses to flourish because: They provide job opportunities & generate wealth Tax revenues will increase, providing the government with extra funds. Governments can influence businesses through: Legislation: (aimed at business in order to protect stakeholders) Health and safety regulations protect employees in the workplace. Environmental legislation protect the community & the environment from business activities. Economic Policies: Interest Rates Private Finance Initiatives Government Subsidies

Stakeholder Conflicts Shareholders directors Employees Happiness

SHAREHOLDERS “maximize profitability” Continued… SHAREHOLDERS “maximize profitability” EMPLOYEES “maximize wages”  costs will increase  profit decreases

LOCAL COMMUNITIES “minimize pollution” Continued… LOCAL COMMUNITIES “minimize pollution” DIRECTORS “expand the business & increase their salaries”  pollution will increase

Different Stakeholder Objectives Shareholders Want regular, secure, & high returns; Have a say in the goals of the business. Managers Want responsibility; High rewards; Lack of interference in their actions. Employees Want high earnings; An interesting job; Secure employment.

Customers Suppliers Local Community Gov’t Continued… Customers Want quality products at low prices; A good service. Suppliers Want secure, regular, & profitable orders Local Community Want successful local businesses that do not cause problems. Gov’t Want to achieve large numbers of goals, including: low inflation & growth in the economy.

HL: Solutions to Stakeholders Conflicts SIX suggested solutions: Arbitration (negotiation) Worker’s council Stakeholder directors Performance-related pay Share option schemes for workers Competitors joining forces

Arbitration Usually applied in large companies when workers and managers cannot agree on: Changes to working practices; Pay raise How staff are managed Independent & respected individuals/groups adopting the role of negotiators. Will be asked to decide on what is fair from the evidence presented by both the company and workforce representatives. At the beginning of the process/talks both sides will agree on accepting whatever solution is recommended by the arbitrator.

Worker’s council Usually made up of representatives from all areas and all positions of responsibility in the organization. Representatives meet on a regular basis to discuss concerns and issues specific groups may face. All internal stakeholders feel that they are being consulted about strategic changes that may be happening.

Stakeholder directors Might be: workers, bankers, community group representatives. In some cases, a work director can result in similar outcomes as the worker’s council. Yet, more detailed discussions and information can be highlighted. Worker Directors: Have to keep in mind that they may be exposed to sensitive financial information for the purpose of persuading the workforce that compromises are the best solution to satisfy all. Bank Directors: Shareholders as well as lenders. Benefits? In some countries they set on the supervisory board of directors. Community Directors: Can gain more local charitable donations in exchange for company expansions in a certain town.

Performance-related pay Workers Want increase in pay Company Wants increase in efficiency Solution  Performance – related pay improvement in productivity = higher pay -ve: problems reappear after the increase in pay as employees get used to the new wage and demand higher salaries. If cycles like this occur, thus there is more underling problems associated with the management methods in the business.

Share option schemes for workers Used instead of increasing cost of production by increasing employee wages. Workers can buy shares in the company at a discount. If the value of shares increase in the medium-term Worker’s wealth will also increase when they sell their shares. Existing shareholders will see a reduction in the stakes but it is usually small.

Competitors joining forces Competitors may join forces to form distribution groups and gain negotiation power. (Supply Chain) Example: Milk supplied from dairy farmers to supermarket groups in the UK.