Stakeholders in a business

Business AS · Business and its environment. The idea in plain words, the rules to remember, the mistake to avoid and a worked example, written and checked by Mega Lecture.

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The idea

A stakeholder is any person or group with an interest in, or affected by, the activities of a business. Internal stakeholders are inside it: owners or shareholders, managers and employees. External stakeholders are outside it: customers, suppliers, lenders, the government and the local community.

Each group wants something different. Shareholders want dividends and a rising share price, employees want fair pay and job security, customers want good value, and the community wants jobs without pollution.

Because these aims differ, most decisions please some groups and upset others. This is stakeholder conflict. How much notice managers take of a group depends on how much power that group has.

Rules to remember

Shareholders own part of a company; stakeholders are everyone with an interest. All shareholders are stakeholders, but not the other way round.
Internal: owners/shareholders, managers, employees. External: customers, suppliers, lenders, government, local community.
Suppliers want regular orders and prompt payment; lenders want interest and repayment on time.
Government wants taxes paid, laws obeyed and jobs created.
Stakeholders have rights (e.g. employees: fair pay, safe conditions) and responsibilities (e.g. employees: do the job as the contract says).
Accountability: a business must explain and justify its actions to its stakeholders, e.g. directors report to shareholders.
A stakeholder has more influence when the business depends on it and cannot easily replace it.

Common mistake

Students treat 'stakeholder' and 'shareholder' as the same word. A shareholder is only one type of stakeholder, so read the question carefully to see which one is meant.

Worked example

A factory near houses plans to add a night shift to meet rising orders. Which two stakeholder groups are most likely to be in conflict, and why?

More output means more sales and profit, so shareholders gain.
Employees may also gain from extra hours and pay.
Night working brings noise, lorries and lights, so local residents lose.
The clearest clash is between a group that gains money and a group that bears the cost.

Answer: Shareholders (higher profit) and the local community (noise and traffic at night).

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