Chapter 13 Stakeholders

Chapter Outline STAKEHOLDERS INTERNAL CONNECTEDEXTERNALCONFLICT

Definition A stakeholder is a group or individual, who has an interest in what the organisation does. Or an expectation of the organisation. Can be categorised into 3 groups: Internal Connected External

Internal Stakeholders StakeholderNeed/ExpectationExample EmployeesPay, working conditions, job security If workers are to be given more responsibility, they will expect increased pay Managers / Directors Status, pay, bonus, job security If growth is going to occur, the managers will want increased profits, leading to increased bonuses Are intimately connected to the organisation, and their objectives influence how the org is run

Connected Stakeholders StakeholderNeed/ExpectationExample Shareholders Steady flow of income, possible capital growth & the survival of the biz Rise in dividend stream CustomersSatisfy customer needs through value-for-money p/s Increases in quality & price, may lead to customer dissatisfaction Refers to those parties who have a contractual relationship with the organisation

Connected Stakeholders StakeholderNeed /Expectation Example Suppliers Paid promptlyDecisions which delay payment to suppliers to ease cash flow. Suppliers may cease supplying goods Finance providers Ability to repay the finance incl. interest, security of investment Firm’s ability to generate cash

External Stakeholders StakeholderNeed /Expectation Example Community at large General public – esp. when their lives are affected by org decisions Local residents’ attitude towards out-of-town shopping centres Environmental pressure groups Org does not harm external environment Airport wants to build a new runway - objection

External Stakeholders StakeholderNeed/ExpectationExample Government Company activities are central to the success of an economy. Meet legislation (OHS…) Actions of companies could break the law Trade unionsTaking an active part in decision- making process Union consultation if org decides to close a specific department

Another approach Primary (internal and connected, i.e. those who have a contractual relationship with the organisation) vs. Secondary stakeholders

Stakeholder Conflict StakeholderConflict Employees vs managersJobs/wages vs bonus Customers vs S/holdersProduct quality vs profit/dividends Public vs S/holdersEffect on environment vs profit/dividends Managers vs S/holdersGrowth vs independence

Mendelow’s power-interest matrix Minimal effortKeep informed Keep satisfiedKey players Level of interest LowHigh Low High Level of Power

Stakeholder mapping is used to assess the significance of stakeholder groups with implications for: –Framework of corporate governance –Key blockers and facilitators of change must be identified –Try to reposition certain stakeholders and discourage others form repositioning themselves, depending on their attitudes

Each groups has 3 basic choices Loyalty: They can do as they are told Exit: E.g. by selling shares, or getting a new job. Voice: They can stay and try to change the system. Those who choose to voice are those who can, to varying degrees, influence the org. Influence implies a degree of power and willingness to exercise it.

Strategic values of stakeholders Org can make strategic gains from managing stakeholder relationships E.g. –Employee and customer loyalty –Continuity and stability in relationships with employees, customers and suppliers

Measuring stakeholder satisfaction Stakeholder groupMeasure EmployeesStaff turnover, pay and benefits relative to market rate, job vacancies GovernmentPollution measures; promptness of filing annual returns; accident rate; energy efficiency DistributorsShare of joint promotions paid for; rate of running out of inventory

Chapter Summary STAKEHOLDERS INTERNAL CONNECTED & EXTERNAL CONFLICT Employees Directors Connected S/holders Customers Suppliers Financiers External Community Pressure groups Government Trade unions ResolutionNature