Stakeholders
Internal and external stakeholders, their interests, and the conflicts that arise between them.
- Define stakeholder and distinguish between internal and external stakeholders
- Identify the interests of each stakeholder group
- Explain how and why conflicts between stakeholders arise
- Apply stakeholder analysis to a real business context
What is a Stakeholder?
A stakeholder is any individual, group, or organisation that has an interest in a business and is affected by — or can affect — its decisions and activities.
Stakeholders are divided into two groups:
- Internal stakeholders — people within the organisation
- External stakeholders — people or groups outside the organisation who are affected by its activities
Internal Stakeholders
| Stakeholder | Main Interests | Influence |
|---|---|---|
| Owners / Shareholders | Profit, return on investment, growth in share price | High — can replace management, approve strategy |
| Employees | Job security, fair wages, good working conditions, career development | Medium — collective action (strikes) can disrupt operations |
| Managers | Salary, bonuses, power, career progression | High — control day-to-day operations and strategic execution |
External Stakeholders
| Stakeholder | Main Interests | Influence |
|---|---|---|
| Customers | Quality products, fair prices, good service, safety | High — revenue depends on their purchases; can boycott |
| Suppliers | Prompt payment, stable orders, long-term contracts | Medium — can withhold supplies or raise prices |
| Government | Tax revenue, employment, legal compliance, economic growth | High — can regulate, tax, subsidise, or close businesses |
| Local community | Jobs, environmental protection, minimal disruption (noise, traffic) | Low–medium — can organise opposition, affect planning decisions |
| Pressure groups / NGOs | Ethical behaviour, environmental protection, labour rights | Medium — media campaigns can damage reputation |
| Banks / creditors | Loan repayment, financial stability, creditworthiness | High — can withdraw credit or trigger insolvency |
Stakeholder Conflict
Stakeholders often have conflicting interests. A decision that benefits one group frequently harms another.
Common Conflicts
| Conflict | Explanation |
|---|---|
| Shareholders vs Employees | Shareholders want cost cuts and higher dividends; employees want higher wages and job security. Redundancies boost profit but harm workers. |
| Shareholders vs Community | Shareholders want to maximise returns; local communities want minimal environmental impact. A factory expansion may increase profit but increase pollution. |
| Customers vs Owners | Customers want lower prices and higher quality; owners want higher profit margins. Lower prices cut into profit. |
| Managers vs Shareholders | Managers may pursue personal empire-building (large acquisitions for prestige) while shareholders want efficient use of capital. |
| Government vs Business | Government imposes regulations (minimum wage, emissions limits) that increase business costs but benefit workers and the environment. |
When identifying stakeholder conflict, name the specific groups in conflict and explain what each group wants and why those wants are incompatible. Then assess which stakeholder's interests are more likely to prevail given the business's situation.
Key Terms
- Stakeholders are all those affected by or who can affect a business
- Internal stakeholders: owners, managers, employees
- External stakeholders: customers, suppliers, government, community, banks, pressure groups
- Stakeholder interests frequently conflict — the most powerful stakeholders tend to have their interests prioritised
- Ethical businesses try to balance stakeholder interests rather than serving only shareholders
Show answer
Likely to support:
- Shareholders: A new store increases the supermarket's revenue and profit potential, raising dividends and share value. They have a direct financial interest in expansion.
- Local job-seekers / employees: The new store creates employment opportunities — both during construction and in permanent retail positions — benefiting people seeking work in the area.
- Customers: A large supermarket brings greater choice, lower prices (due to the chain's buying power), and convenient one-stop shopping that may not currently exist locally.
Likely to oppose:
- Local independent retailers: A large supermarket chain competing on price and range could reduce their customer base significantly, threatening their survival. They lack the economies of scale to compete.
- Local community / residents: Concerns about increased traffic, noise, and visual impact on the town's character. There may also be worry that a supermarket will draw shoppers away from the town centre, causing existing shops to close.
Award 1 mark for identifying the stakeholder + 1 mark for a clear, logical explanation of their position.
Show answer
Shareholders are primarily motivated by financial returns — they want the business to maximise profit so they receive higher dividends and see their shares appreciate in value.
Employees, in contrast, want higher wages, job security, and good working conditions. Higher wages directly increase the business's costs, which reduces profit and therefore shareholder returns.
This creates a direct conflict: money paid to employees as wages is money not distributed to shareholders. In practice, large businesses often address this through performance-related pay (aligning employee rewards with profit) or share ownership schemes, but the fundamental tension remains.
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Businesses / Shareholders: Compliance with the reporting requirement will increase administrative costs — businesses must collect data, commission audits, and publish reports. This reduces profits. However, it may also encourage businesses to improve their environmental practices to avoid reputational damage from poor results, which could benefit long-term brand value.
Local communities / Environmental pressure groups: Mandatory disclosure gives these stakeholders access to data they previously lacked. Communities living near industrial facilities can use the reports to hold businesses accountable. Pressure groups can use the data to campaign for stronger regulation or corporate change, increasing their power.
Award 3 marks per stakeholder group: 1 for identifying the stakeholder, 1 for the impact, 1 for depth of analysis or a counter-argument.