Introduction to Business

Management
Unit 3: Stakeholders

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 Learning Objectives
• Introduce the concept of business environment
• Explain the setting of business environment
• Understand the concept of stakeholders which is
the basis of ethical behavior and corporate social
responsibility
• Define the corporate governance and explain its
roles and importance
• Reading:
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 Introduction
• Business organisation consists of people.
• Business organisation operates with people outside and other
organisations.
– suppliers,
– Middlemen
– Customers
– Etc.
• Business organisation operates in environment. The relationships
and interactions between a firm and its environment are very
important for managers to make the right decisions and to
undertake their functions.
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 Introduction (cont.)
• ‘Stakeholders’ are the important and most
influential parties of organization which
consist of key players of the firm from both
inside and outside.
• Management today assumes the responsibility
not only to satisfy the interest of shareholder
but also those of all the stakeholders.

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 Stakeholders
• Definition
– ‘those organizations and individuals that may not necessarily have any direct
dealings with a company, but that are nevertheless affected by its actions’
• All organisations have a wide range of internal and external
stakeholders.
• External stakeholders include:
– suppliers
– Financiers
– central and local government
– shareholders and
– customers.

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 Stakeholders (cont.)
• Stakeholders vary in influence and impact on
the organisation.
• Two groups of stakeholders:
– Primary
– Secondary

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A Simple Model of Stakeholders

The Financial
Community

Suppliers Customers

The Organisation

Interme-diaries Employees

Local
Government
Communities

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 Customers
• Is customer always right?
• Customers may sometimes not be aware of
their true needs or may have these needs
manipulated by exploitative companies.
• Satisfy longer-term and broader needs rather
than their immediately felt needs.

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 Employees
• Nowadays many buyers are concerned with firm’s
reputation in treating its employees.
– exploiting its employees, or
– not recognizing the legitimate rights of trades unions
• For this reason, some companies, such as Nike
and Marks & Spencer, have gone to great lengths
to challenge allegations made about the
employment practices of their overseas suppliers.
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 Local Communities
• Market-led companies often try to be seen as a 'good
neighbour' in their local community.
• Such companies can enhance their image through the use of:
– charitable contributions
– sponsor­ship of local events and
– being seen to support the local environment.
• Again, this may be inter­preted either as part of a firm's genuine
concern for its local community, or as a more cynical and
pragmatic attempt to buy favour where its own interests are at
stake.
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 Government
• The demands of government agencies often take precedence
over the needs of a company's customers.
• Government has a number of roles to play as stakeholder in
commercial organiza­tions.
• Commercial organizations provide governments with taxation
revenue, so a healthy business sector is in the interests of
government.
• Government is increasingly expecting business organizations
to take over many responsibilities from the public sector,.

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 Intermediaries
• Intermediaries may share many of the same
concerns as customers and need reassurance
about the company's capabilities as a supplier
that is capable of working with intermediaries
to supply goods and services in an ethical
manner.

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 Suppliers
• It is critical that supplies are delivered to a company on time
and in good condition.
• The way in which an organization places orders for its inputs
can have a significant effect on suppliers.
– Does a company favour domestic companies rather than pos­sibly
lower-priced overseas producers?
– Does it divide its orders between a large number of small suppliers
or place the bulk of its custom with a small handful of preferred
suppliers?
– Does it favour new businesses or businesses representing minority
interests when it places its orders?
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 Financial Community
• This includes financial institutions that have
supported, are currently supporting or who
may support the organization in the future.
• Shareholders — both private and institutional
— form an important element of this
community and must be reassured that the
organization is going to achieve its stated
objectives.
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 Examples Of Expectations
Shareholders Customers
• Growth in dividend • Price always
payments competitive
• Growth in share price • Emphasis on
• Consistent dividend product/service quality
payments • Return and replacement
• Growth in net asset policies
value • Warranty/guarantee
provisions
• Product reliability
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 Examples Of Expectations (cont.)
Suppliers Employees
• Timely payment of debt • Good compensation and
by company benefits
• Adequate liquidity • Job security
• Integrity and public • Sense of meaning or
standing of directors purpose in the job
• Negotiating ability of • Opportunities for
the purchasing manager personal develop,ment
• Amount of interesting
work
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 Examples Of Expectations (cont.)
Government Lenders
• Efficient use of energy • Liquidity of the company
and natural resources • Character and standing of
• Adhering to the company management
country’s laws • Quality of assets
• Paying taxes available for security
• Potential to repay interest
• Provision of
and capital on due date
employment
• Value for money in the
use of public funds
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 Stakeholder Power
• Formal Power
• Resource Power
• Expert Power

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 Stakeholder Mapping
LEVEL OF HIGH
LO
W INTEREST

A B
HIGH
Minimal Keep
Effort informed
POWER

C D
LO
W
Keep Key
satisfied players

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 Corporate Governance
• Free market ideology
– Companies’ responsible to their stakeholders by the actions of customers and
investors.
– If they became 'bad' citizens, they would be punished by customers not buying their
products, and shareholders selling their shares in the company.
– The reporting system provided by the company's annual profit and loss account and
balance sheet was the means of reporting to the world about its performance.
• Unfortunately, these have often proved insufficient to prevent companies
being managed in such a way that investors have lost their money; customers
have been let down and employees have lost their jobs unnecessarily.
• There is therefore growing concern with the concept of corporate governance
— ensuring that an organization is run in a responsible manner with due
regard to its key stakeholders.
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Good Practices in Corporate Governance

 Having in place internal control systems

 Having an appropriate structure for the board of directors
 Striking a balance, when remunerating senior directors and employees,
between the reassurance of a long-term salary and performance for
results.
 Recognizing employees as increasingly important stakeholders in
organizations
 The relationship between a company and its auditors should be at arm's
length.

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 Summary
• Business organisations operate in environment and
certain group of internal and external environment
influence on the performance of each organisation and
vice versa.
• Stakeholders hold their own expectations.
• Traditional view of market economy is to focus merely
on business performance shown in financial statements.
• Corporate governance is necessary to safeguard the
interests of stakeholders.

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