Stakeholders

After studying this section you should be able to:

• define the term ‘stakeholder’ and give relevant examples
• compare the shareholder concept with the stakeholder concept

The nature of stakeholders

Stakeholders are individuals or groups that have an influence on, or are influenced by, an organisation’s decisions.

Shell companies recognise five areas of responsibility:

• 1 To shareholders
• 2 To customers
• 3 To employees
• 4 To those with whom they do business
• 5 To society

Source: Royal Dutch/Shell Group of Companies, 1997

The organisation’s directors and managers face a possible conflict between their duty to stakeholders and their duty to shareholders. Because shareholders appoint directors and (through the directors) employ managers to run the firm, directors and managers should undertake policies for the benefit of the shareholders. This shareholder concept implies policies maximising share price and dividend should be followed at the expense of other policies.

The objectives of other stakeholder groups may conflict with this, and there may also be conflict between the objectives of any two stakeholder groups. For example, improving employee morale and efficiency by training will increase costs and affect profit (in the short term); by establishing closer links with a supplier, a company may start using new manufacturing processes that will affect its relationships with the local community. In the longer run there may not be a conflict: improvements for employees, better links with suppliers and customers improve quality, efficiency and profitability, and therefore bring higher profits.

Image