The definition of stakeholders

Stakeholders are individuals or groups who have an interest in a business because its activities affect them in some way. This includes anyone impacted by the decisions or operations of the business, from small enterprises to large companies.

Stakeholders often hold varying views on what constitutes success for a business, as their priorities differ based on how the business affects them. These differing perspectives can shape the objectives a business sets.

Different types of stakeholders and their interests

Businesses interact with various stakeholders, each with specific concerns and benefits tied to the firm's performance.

Main types of stakeholders and what they want from a business

Owners are typically the most important stakeholders, as they invest in the business and receive profits if it succeeds. In limited companies, shareholders act as owners and benefit from dividends, which increase with the number of shares held.

How stakeholders influence business objectives

Stakeholders can affect the goals a business sets, such as targets for profit, expansion, or sustainability. While owners hold the most power to make decisions, they must consider other stakeholders to ensure long-term success.

Ways stakeholders shape business decisions

• Owners' influence - As decision-makers, owners prioritise objectives like maximising profits, but they often adjust these to meet the needs of other groups.
• Employees' role - Workers push for objectives that ensure stable employment and fair treatment.
• Suppliers' impact - Reliable suppliers may encourage growth-oriented objectives to secure ongoing contracts.
• Local community's effect - Communities can influence firms to adopt ethical or environmental objectives.
• Government's involvement - Policies and taxes can steer businesses towards objectives that promote economic growth or job creation.
• Customers' power - Businesses must align objectives with customer needs, as failing to provide value can result in lost sales and failure.

Some stakeholders have more influence than others.

Conflicts between stakeholder interests

Stakeholder groups often have opposing views on a business's objectives, forcing the firm to balance these to avoid negative consequences. While a business might prioritise certain stakeholders, ignoring key ones like customers or employees can threaten survival.

Examples of conflicting stakeholder interests

• Profit vs. ethics - Owners may focus on high profits, but this could conflict with the local community's desire for reduced pollution or employees' need for better working conditions.
• Growth vs. community impact - Suppliers benefit from a firm's expansion, but rapid growth might cause noise or disruption in the local area, upsetting residents.
• Customer satisfaction vs. costs - Customers want low prices, which might require cutting employee wages, leading to conflicts with workers' interests in fair pay.
• Short-term gains vs. long-term stability - Shareholders might push for quick dividends, while the government prefers objectives that create jobs and sustain economic growth.

Balancing stakeholder needs in practice

A business may choose to overlook less critical stakeholders, such as a distant community if products are sold elsewhere. However, essential groups must be considered; for instance, a firm cannot ignore customers, as poor sales lead to failure, or employees, as this reduces efficiency.

Consider a software development company: the owners want to launch a new product quickly, but this would require extended working hours that could affect employee wellbeing and work-life balance. The company must balance the interests of both stakeholders (owners and employees) to ensure the product is developed efficiently while maintaining good working conditions.