1. Using examples, explain the difference between ‘internal’ and ‘external’ stakeholders. Internal stakeholders of a business are members of an organisation. They consist of the employees, shareholders (who own the business), managers and directors of the organisation. External stakeholders do not form part of the business (such as customers, suppliers and the government), but have a direct interest or involvement in the actions of the business. 2. What is the difference between ‘stakeholders’ and ‘shareholders’?
A stakeholder refers to any person or organisation that has a direct interest in and is affected by the performance of a business. Shareholders are the owners of private and public limited companies. They invest their money in a company by purchasing shares as they expect the company to generate a healthy return on their investment. They are a powerful stakeholder group as they have voting rights and a ‘say’ in how the business is managed. Since shareholders are the owners of a company, they are entitled to a share of its profits. 3.
Distinguish between a ‘director’ and a ‘shareholder’ of a company. Directors are senior executives who have been elected by the company’s shareholders to oversee business operations. If the business is a sole proprietorship, then the senior manager is also the owner, whereas in a limited company the senior staff and directors are elected to run the company on behalf of their owners. Shareholders are the owners of private and public limited companies. They invest their money in a company by purchasing shares as they expect the company to generate a healthy return on their investment.
They are a powerful stakeholder group as they have voting rights and a ‘say’ in how the business is managed. Since shareholders are the owners of a company, they are entitled to a share of its profits. 4. What are the four main types of special interest groups (SIGs)? Trade unions, or labour unions, aim to uphold and enhance the conditions of work for their members. Pressure groups consist of individuals with a common interest who seek to place demands on organisations to act in a particular way or to influence a change in their behaviour.
Industry trade groups are organisations that specialise in public relations with the aim of promoting a particular industry, through education and advertising. And industry trade group is funded by the business that operates in that specific industry. The local community will place demands on the business that operate in their community. These may include: * Job creation and opportunities to provide extra income and spending in the local community * The need to be considerate of the local environment * A wide choice in the provision of products at competitive prices * Sponsorship of local and fund-raising events
5. Differentiate between ‘lobbying’ and ‘boycotting’. Boycotting is the recommendation to refuse to buy the products from a certain business. This might be done by creating adverse publicity for the business Lobbying means using the strength of a pressure group to discuss and influence key issues (with employees, legal representatives and the government) in favour of its cause. Gaining public support can also help to influence governments to introduce legislation against socially undesirable business activities. 6. How might pressure groups affect the success of a business?
Actions taken by pressure groups: Boycotting is the recommendation to refuse to buy the products from a certain business. This might be done by creating adverse publicity for the business Direct Action means the pressure group itself takes action to express their views. Examples include staging mass protest and taking legal action against firms who may have acted illegally. Lobbying means using the strength of a pressure group to discuss and influence key issues (with employees, legal representatives and the government) in favour of its cause.
Gaining public support can also help to influence governments to introduce legislation against socially undesirable business activities. Public Relations (PR) means getting positive publicity about a specific opinion or cause, e. g. charities have often used famous celebrities in support of their mission. PR is very important since it helps to raise public awareness and support. 7. Outline four sources of conflict in a business. Since different stakeholder groups have varying interests in an organisation, it is likely that conflict will arise.
Businesses will need to take decisions that will address the interests of some stakeholder groups but at the expense of not being able to meet the needs of other groups. A major cause of potential stakeholder conflict is the pay and remuneration of the directors of a company. Shareholders and employees may argue that top management are ‘overpaid’ and that there should be fairer distribution to shareholders (in the form of dividends) and staff (in the form of better wages and salaries).
Advocates of large salaries and benefit packages for senior executives would argue however that the remuneration needs to be adequate to compensate for the higher risks involved in decision-making. They argue that this could ultimately lead to more profits for the business, and hence lead to higher dividends and wages in the future. Another source of potential conflict is that some stakeholders have more than one interest in an organisation. For example, managers are employees of a company, and some employees may also be shareholders of a company.
A customer is also likely to be a member of the local community. Based on the differing objectives of these stakeholder groups, some degree of conflict is likely to occur. 8. How might business resolve conflict in the workplace? For any business to progress there must be some form of resolution to the conflict. The outcome to any negotiation will depend largely on the relative bargaining power of the different stakeholders. It is highly unlikely that a business can fulfil the aims of all its stakeholders at the same time; yet it is undesirable to aim to maximise the needs of just one stakeholder group.
If a particular stakeholder group is not catered for, then it is likely that they will cause disruptions and problems for the business. Most business will aim for a ‘best fit’ compromise so that stakeholder groups are all reasonably pleased with the conduct of the business. 9. Explain how the use of Johnson and Scholes’s stakeholder mapping tool can be used to aid management decision-making. Their stakeholder mapping model can be used to assess the relative interest of stakeholders in a business and their relative power (or influence) on business behaviour.