Chapter 5 - Stakeholders in A Business

Unit 1: Business and its
environment
Chapter 5 – Stakeholders in a business
Aims & Objectives
• Aim(s)
• To develop an understanding of stakeholders in a business.
• Objectives
• Analyse the impact of decisions on stakeholders, how and why a business
might consider stakeholder interests in its decision making, and the
benefits of being responsible.
• Assess the roles, rights and responsibilities of stakeholders.
• Evaluate corporate social responsibility (CSR) and its impact on
stakeholders.
• Analyse ways in which businesses can respond to stakeholder conflicts.
LO1: Analyse the impact of decisions on stakeholders, how and why a business might consider stakeholder interests in its
decision making, and the benefits of being responsible.
Key Terms
• Stakeholders – people or groups of people who can be affected by -
and therefore have an interest in – any action by an organisation.
• Stakeholder concept – the view that businesses and their managers

have responsibilities to a wide range of groups, not just shareholders.
Introduction
• Traditional view
• ‘shareholder concept’ – the business
must legally put their needs first 🡪
increase shareholder value
• Modern view
• ‘stakeholder concept’ – the business has
a responsibility to consider parties other
than its owners..
Main Stakeholders • Role = What does the

stakeholder do in
Customers relation to the
Special business?
interest Suppliers
groups
• Rights = What are
their legal rights?
Competitors Shareholders
• Responsibilities =
How should they
Banks or (other behave? This is to do
Lenders) Employees (and their families)
with ethics not the
law.
Local
Government
communities
LO2: Assess the roles, rights and responsibilities of stakeholders.
Customers
Roles Rights Responsibilities
• Purchase goods • To receive goods • To be honest - pay
and services and services that when requested
• Provide revenue meet local legal • Not to steal
from sales standards • Not to make false
• To be offered claims about goods
replacements, / services
repairs or
compensation if the
product doesn't
meet the minimum
Suppliers
• Supply goods and • To be paid on time • To supply goods
services to allow – as agreed via a and services on
customers to offer contract time and in a
products to its own • To be treated fairly suitable condition
customers – e.g. not to have
unfair prices forced
upon them by a
larger business
Employees
• Provide labour as • To be paid on time • To be honest
per a contract, to – as agreed via a • To meet the
allow goods and contract conditions and
services to be • To be treated as requirements of the
provided. per minimum laws, contract
e.g. minimum wage • To cooperate with
• To be allowed to management
join a trade union • To behave ethically
Local Community
• to provide the • to be consulted • to cooperate with
labour services about major the business,
required by the changes that affect where reasonable
business it, e.g. expansion to do so, on
plans or changing expansion and
methods of other plans
production
Local Government
• to provide local • not to have the • to meet reasonable
services and community’s lives requests from the
infrastructure to the badly affected by business for local
business to allow it the business’s services such as
to operate, produce activities public transport for
and sell within legal employees and
limits waste disposal
Government
• Pass laws that • Businesses have • Treat businesses
restrict some the duty to meet all equally
business activity legal requirements, • To prevent unfair
• Achieve economic e.g. abide by laws, competition
stability to pay taxes etc. • To establish good
encourage trade links with
business activity other countries
Lenders
• Provide finance to • To be repaid on • Provide agreed
businesses time amount of finance
• To provide support • To be paid finance on agreed date for
and advice charges, e.g. the agreed period
(especially to small interest on a loan
businesses)
• Customer: You purchased a product that malfunctioned within a week. What

do you do?
• A. Ignore it
• B. Seek a replacement or compensation
• C. Write a negative review without contacting the company
• Supplier: The business is late on a payment. How do you respond?
• A. Cut off supply immediately
• B. Contact the business to discuss the issue
• C. Ignore the late payment
Customer Scenario:
You purchased a product that malfunctioned within a week. What do you do?
• A. Ignore it - Incorrect. Customers have the right to receive goods and services that meet local laws
regarding health and safety, design, and performance.
• B. Seek a replacement or compensation - Correct. Customers have the right to be offered
replacements, repairs, or compensation in the event of the failure of the product or service.
• C. Write a negative review without contacting the company - Incorrect. While customers can express
their opinions, it's also their responsibility to be honest and not make false claims. Contacting the
company first is a responsible step.
Supplier Scenario:
The business is late on a payment. How do you respond?
• A. Cut off supply immediately - Incorrect. Suppliers should aim for a fair and ethical approach.
• B. Contact the business to discuss the issue - Correct. Suppliers have the right to be paid on time, and
it’s their responsibility to communicate and address issues professionally.
• C. Ignore the late payment - Incorrect. Suppliers have the right to be paid on time and should address
the issue.
• Employee: You are asked to work overtime without extra pay. How do
you react?
• A. Accept without question
• B. Refuse and report the issue
• C. Discuss the situation with management
• Local Government: The business requests improved public transport
for its employees. What is your course of action?
• A. Ignore the request
• B. Assess the request and respond accordingly
• C. Immediately implement changes without assessment
Employee Scenario:
You are asked to work overtime without extra pay. How do you react?
• A. Accept without question - Incorrect. Employees have the right to be treated and paid
according to the employment contract and legal standards.
• B. Refuse and report the issue - Correct. Employees should ensure their rights are respected and
can seek redress if they are violated.
• C. Discuss the situation with management - Also a viable option. Cooperation and
communication are key responsibilities of employees.
Local Government Scenario:

The business requests improved public transport for its employees. What is your course of action?
• A. Ignore the request - Incorrect. Local government has the responsibility to meet reasonable
requests from the business for local services.
• B. Assess the request and respond accordingly - Correct. It’s essential to evaluate the request's
feasibility and impact before making a decision.
• C. Immediately implement changes without assessment - Incorrect. Proper assessment and
planning are crucial to ensure the community’s needs are balanced with the business’s requests.
Responsibility to stakeholders – impact on

business decisions
Responsibilities to customers
• What do customers expect?
• Quality
• Durability
• Customer service
• Value for money
• Benefits of accepting those responsibilities
• Loyalty
• Repeat purchases
• Recommendations

business decisions
Responsibilities to suppliers
• What do suppliers expect?
• Prompt payment
• Regular orders
• Long-term contracts
• Loyalty
• Reasonable credit terms
• Meeting deadlines
• Accepting special requests

business decisions
Responsibilities to employees
• What do employees expect?
• Training opportunities
• Job security
• Good pay
• Good working conditions
• Involvement in decision making
• Loyalty
• Low labour turnover
• Easier to recruit good staff
• Employee suggestions --> efficiency / customer service
• Better communication

business decisions
Responsibilities to local community
• What do the local community expect?
• Secure employment
• Spending on local suppliers
• Reduce transport impact
• Minimal effect on environment
• Local councils more likely to give planning permission
• Willingness to accept negative impacts if they fund community project

business decisions
Responsibilities to government
• What do the government expect?
• Obey all laws
• Pay taxes on time
• Seek to export when possible
• More likely to gain planning permission
• More likely to receive government contracts
• More likely to be granted licenses
Impact of business activities on stakeholders

Activity – presentations
Impact of business decisions on stakeholders
Research a real business example where the business has made one of
the following decisions.
Apply and analyse the impact and reactions that were in response by
the employees, local community, customers, and 2 other
stakeholders of your choosing:
Group1: Build a new factory to expand a business

Group2: Horizontal integration take over
Group3: Purchase IT-controlled automated machines
Some ideas for the group task

Who are the primary profit maximizers in a business?

A. Customers
B. Employees
C. Owners/Shareholders
D. Local Community
Which stakeholder group is most likely to be concerned about

a company’s environmental impact?
A. Suppliers
B. Local Community
C. Lenders
D. Employees
Who might oppose a company’s policy due to ethical

concerns?
A. Government Agencies
B. Special Interest Groups
C. Owners/Shareholders
D. Suppliers
If a company decides to cut costs, which group is likely to be

directly affected?
A. Customers
B. Lenders
C. Employees
D. Suppliers
Who is primarily concerned with the timely repayment of

loans?
A. Customers
B. Lenders
C. Employees
D. Government Agencies
STAKEHOLDER CONFLICT
STAKEHOLDER CONFLICT
1. Owners/Shareholders:
Want to maximize profits, which can conflict with other stakeholders’ interests.
2. Customers:
Desire quality products/services at low prices, conflicting with owners’ profit maximization goals.
3. Suppliers:
Aim for higher prices for their goods/services, conflicting with owners’ cost minimization goals.
4. Employees:
Seek better wages and working conditions, which can increase operational costs and reduce profits.
5. Local Communities:
Concerned about environmental and social impacts of business operations, conflicting with business
expansion or operational methods.
6. Government and Agencies:
Implement regulations that can increase operational costs or limit business practices, conflicting with owners’
profit goals.
7. Special Interest Groups:
Oppose certain business practices on ethical or environmental grounds, conflicting with business operational
methods or policies.
8. Lenders:
Seek timely repayment and low risk, which can conflict with owners’ risk-taking for higher returns.
https://www.youtube.com/watch?v=gc55hPIFW8w&ab_channel=tutor2u
LO4: Analyse ways in which businesses can respond to stakeholder conflicts.
Activity – presentations
Conflicts from different stakeholder objectives
• Group1 and 2:Research a recent major development such as a major retailer
planning to develop a new shopping centre on park land, or building a new
airport, motorway etc.
• Group3 and 4:Research a company that has changed their objectives recently
such as growth to survival.
• Analyse the impact of this on different stakeholders. Look at both positives and
negatives to assess the conflicts between stakeholders.
• Then provide a judgement based on your analysis: ‘This _______
should/shouldn’t be allowed.’
• What measures the management (and the government through planning
controls) could/have put in place to resolve the conflicts/different aims identified
for each stakeholder group?
LO3: Evaluate corporate social responsibility (CSR) and its impact on stakeholders.
Corporate Social Responsibility (CSR) – An

Evaluation
• A short-term (negative) view…
• CSR takes money away from both shareholders and expansion
opportunities, holding the business back
• A long-term (positive) view…
• Investing in improved employee working conditions, worthwhile local
community projects, or paying more for ethically sourced resources
can lead to benefits in:
• Marketing
• Public relations
• Employee motivation
Progress check: Activity 5.3

Conflicts from different stakeholder

objectives
• An example, an airport may wish to introduce 24 hour flights…
• Airlines and passengers benefit
• This may only be accepted if the airlines and airport pay for sound
insulation for local homes.
• Directors must weigh up such difficult decisions and decide which

stakeholders to prioritise. This is why they are paid more!
• Any other issues that you can think of?
• Activity 5.4
Impact on stakeholders of changing business

objectives
• The dynamic world of business means directors/senior managers may
have to change corporate objectives.
• From growth - > survival!
• Which Stake holders may be affected and how?
Activity 5.5 done in notebook

Impact on stakeholders of changing business

objectives
Progress Check
Exam style question
• Analyse two problems the newly merged Flights4U and Special Air
business will have in meeting responsibilities to all stakeholders. [8]
There is a conflict between stakeholder objectives. For example, shareholders are interested
in profit and growth as this increases shareholder value and potential dividend payments.
However, driving down costs to increase profit will conflict with the objectives of other
stakeholders such as employees. In this case, there will be job losses and communities may
suffer from the loss of routes. Therefore, some customers will also lose out due to the
reduced level of service. But, to offer lower prices on the more popular routes, it is necessary
to cut unprofitable routes.
The key issue for Special Air and Flights4U centres on its relationship with employees. The job
losses from closing Special Air’s headquarters and some regional routes appear likely to
result in industrial action. Any industrial action is costly in terms of lost revenues if flights
cannot operate. Further, the merged airline may have to pay compensation to stranded
customers. However, if industrial action is prolonged then the airline stands to lose
customers to competitors and will have a tarnished public image. The loss of long-term
custom will reduce revenues; therefore, the merger may turn out not to be as profitable as
expected.

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Chapter 5 - Stakeholders in A Business

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Unit 1: Business and its

• Stakeholder concept – the view that businesses and their managers

Main Stakeholders • Role = What does the

• Customer: You purchased a product that malfunctioned within a week. What

Local Government Scenario:

Responsibility to stakeholders – impact on

Responsibility to stakeholders – impact on

Responsibility to stakeholders – impact on

Responsibility to stakeholders – impact on

Responsibility to stakeholders – impact on

Impact of business activities on stakeholders

Group1: Build a new factory to expand a business

Some ideas for the group task

Who are the primary profit maximizers in a business?

Which stakeholder group is most likely to be concerned about

Who might oppose a company’s policy due to ethical

If a company decides to cut costs, which group is likely to be

Who is primarily concerned with the timely repayment of

Corporate Social Responsibility (CSR) – An

Progress check: Activity 5.3

Conflicts from different stakeholder

• Directors must weigh up such difficult decisions and decide which

Impact on stakeholders of changing business

Activity 5.5 done in notebook

Impact on stakeholders of changing business

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