The shareholder and stakeholder concepts

Business activities always affect at least one group of stakeholders, and some of these groups hold enough influence to shape business decisions and operations.

Traditional shareholder concept

The shareholder concept is the conventional approach where businesses have a legal obligation to focus primarily on the needs of their owners (shareholders). This means prioritising actions that boost shareholder value.

Modern stakeholder concept

The stakeholder concept recognises that businesses should consider a wider range of groups beyond just owners. These include local communities, the general public, government bodies, and environmental organisations when making decisions.

Impacts of business activities on stakeholders

Business decisions can have varied effects on different stakeholder groups, often creating both positive and negative outcomes. These impacts depend on the nature of the activity and the stakeholders involved.

Effects of establishing a new production facility

• On employees - Creates new job opportunities, though workers may need to develop additional skills.
• On local community - Boosts employment in the area, but could lead to increased traffic congestion and pollution.
• On customers - May result in reduced prices due to higher production efficiency, but could raise concerns about maintaining product quality standards.

Effects of merging with a competitor

• On employees - Offers potential for career advancement, but might also lead to redundancies.
• On local community - Could drive economic growth through a larger business presence, or cause closures of duplicate sites.
• On customers - Might lead to lower prices from economies of scale, but could reduce product choices and increase prices due to less competition.

Effects of investing in automation technology

• On employees - Provides chances for training in new technologies, but may result in job losses.
• On local community - Could create specialised job openings, while reducing the number of positions for unskilled workers.
• On customers - Often improves product quality and consistency, though it might cause temporary disruptions in delivery times.

Responsibilities to different stakeholder groups

Corporate social responsibility (CSR) reflects how businesses are increasingly held accountable to their stakeholders.

Responsibilities to customers

• Supplying high-quality products that match expectations and are priced fairly.
• Complying with consumer protection regulations and honest advertising practices.
• Preventing the exploitation of vulnerable groups.

Responsibilities to suppliers

• Communicating requirements clearly and consistently.
• Ensuring timely payments, consistent orders, and offering long-term agreements.

Responsibilities to employees

• Offering training programmes, secure employment, competitive pay, and safe working environments.
• Engaging employees in decision-making to value their input.

Responsibilities to local community

• Providing reliable jobs, sourcing from local suppliers, and reducing environmental harm like noise or waste.

Responsibilities to government

• Adhering to all laws, submitting taxes on time, and providing accurate financial reports.
• Exploring opportunities to expand exports.

Benefits of meeting stakeholder responsibilities

Fulfilling responsibilities to stakeholders through CSR not only builds trust but also brings practical advantages to the business. These benefits can enhance long-term success and reputation.