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

2. 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

3. 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.

4. (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

5. (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

6. 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

7. (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.

8. (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

9. 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

10. (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

11. Stakeholder Conflicts
Shareholders
directors
Employees
Happiness

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

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

14. 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.

15. 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.

16. 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

17. 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. 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.