Revision on Shareholders vs Stakeholders

Revision on Shareholders v Stakeholders

1. 3.4.3 Shareholders versus stakeholders Edexcel A-Level Business Theme 3 Business Decisions and Strategy

2. Learning Objectives/Key Points Internal and external stakeholders Stakeholder objectives Stakeholder influences Shareholder influences The potential for conflict between profit-based (shareholder) and wider (stakeholder) objectives

3. Definition of stakeholder A stakeholder is anyone who has an interest in the business, or who may be affected by the activities of the business Please do NOT mix this up with shareholders who hold shares in a business and can also be stakeholders

4. Getting started

5. Who are the main stakeholders of a business? STAKEHOLDERS E_____________ S_______________ C_____________ C_______________ G________________ S_______________

6. Internal and external stakeholders A stakeholder is a person, group or organisation who can affect or be affected by the organisations actions, objectives and policies The interest each stakeholder has in the organisation will vary according to the nature of their stake

7. How do stakeholders influence targets set? STAKEHOLDERS Employees may want to earn more as a reward for their efforts, they may also want the business to grow so they have promotion opportunities Owners may want to maximise their returns (high dividends) Small firms may be reliant on a small amount of customers – who become powerful A small firm selling to a large supermarket may have to accept the terms offered by the supermarket – this means the customer can affect the level of sales and profits The community will want the business to behave responsibly. The business may set targets such as recycling, noise & waste reduction and try to employ local people. The local community may want to reduce the environmental impact if the business activities Suppliers will want to be paid on time, the business may set targets to pay all bills within a given time. The suppliers will want the business to expand as this could mean they will supply more raw materials to the organisation

8. Internal Stakeholders Internal stakeholders are groups of people inside the business that have a direct interest in its survival and well-being Business owners are stakeholders because they stand to gain or lose, financially from the performance of the business. In larger businesses shareholders can be internal or external Employees are internal stakeholders because they work for the business Manager and directors: in a small business all of the managerial tasks such as organising, decision making, planning etc. are done by the entrepreneur. While in large businesses a board of directors make strategic decisions and then the managers ensure these are implemented

9. Internal stakeholders Groups or individuals within an organisation who have an interest in the business Tesco’s employees – want to know about job security, 310,000 employees in the UK Tesco’s managers – want to know about budgets, targets, profit, promotion and bonuses Tesco’s board of Directors – want to know about strategic objectives, and profit

10. Objectives The owner of a business will set objectives for example to make more profits This decision can be influenced by the different stakeholders – they will have their own objectives which may influence the targets set by the business

11. Owners/directors Increased profit Increase in value of the business Expansion Loyal and hardworking employees Pay shareholder dividends

12. Employees Security, promotion, good pay Safe working conditions Training To be proud of their company Treated within the Equality Act 2010

13. External stakeholders External stakeholders are made up of a range of groups outside the business that may have an interest in its activities Shareholders Customers Creditors Suppliers The local community The government The environment

14. External stakeholders Groups or individuals outside of an organisation who have an interest in the business Customers – interested in product availability, prices, promotions Community groups – interested in effect on locals of store opening Unions – interested in pay rates and worker’s rights Suppliers – interested in credit terms, contracts and profit margins Competitors – interested in market share, market size, promotions, customer loyalty

15. Customers Want high quality Value for money Reliability and continuity of service Product improvement Good customer service

16. Suppliers Regular and repeat orders Prompt payment Products promoted Feel valued

17. Local & national communities Local Jobs Stock of relevant products Noise reduction Responsible disposal of rubbish Community leaders representing interests of the group National Access to services and products on a national basis, ie TCT units Recycling – limit use of plastic bags Less pollution Actions of some big companies have devastating effect on communities, e.g. Shell in the Delta Region of Nigeria

18. Trade unions Look after employee interests Negotiate for high wages & better working conditions for their members Unite – retailer workers CWU – communication workers Unison – healthcare workers

19. Employer associations Trade unions for employers Look after interest of employers in specific industries ACAS - The Advisory, Conciliation and Arbitration Service Electrical Contractors Association Charities Commission BIRA – British Independent Retail Association

20. Governments Want businesses to be successful, create jobs and to pay taxes If prosperous to take responsibility for the welfare of society – e.g. Tesco, Neighbourhood Food Collection

21. How do your stakeholders rank? Stakeholder Expertise Willingness to engage Contribution to the success of the business Customers Low High High Unions High Medium Low Suppliers High Low High Employees High Low High Competitors High Low Low

22. Stakeholder objectives Many stakeholders have common objectives of wanting the business to survive and be successful, as well as their own specific objectives Shareholders want the business to maximise shareholder value, wanting share price to grow Employees want the business to grow and prosper leading to higher wages, perks and bonuses, job security Managers and directors will have similar objectives to employees as wages are linked to company performance in many cases Customers want good quality products at a fair price, choice, safe products Suppliers want to be treated fair and have long-term contracts and orders Government want businesses to grow and make more profit, and not break any legislation Environment groups want businesses to refrain from having a negative impact on the environment, not damaging wildlife and its habitats, pollute or waste resources Local community will want businesses to contribute to the prosperity of the community and be good corporate citizens, create employment, build links with schools/charities, minimise congestion and pollution

23. Question 1

24. Stakeholder influences – stakeholder approach Some corporations take into the account the objectives of the wider group of stakeholders in addition to shareholders when making decisions Stakeholder influences – shareholder approach Traditionally business have focused on growth and profit when making decisions, the objectives of shareholders have more influence over stakeholders in this approach, making as much money as possible for the owners

25. Potential for conflict

26. Prepare tactics- Shareholders against Stakeholders Communicate with these stakeholders at Board level Passive no action required Engage with these stakeholders Communicate with these stakeholders at a store level These tactics will change with the objectives of the business, the objective here was to engage with stakeholders and to prioritise who, how and where this should take place for Tesco.

27. Stakeholder objectives Stakeholder Objectives Conflict with Shareholders objectives? Customers Low prices Conflict – high profits, therefore keep prices high where possible Suppliers High prices for their supplies Conflict – high profits, therefore low prices paid for supplies Government Tax, Conflict tax erodes profit, conflict Directors want to open lots of stores for market dominance Unions Working conditions and pay Conflict, high profits means cost cutting and paying as low wages as possible Employees Pay and job security Conflict, profit may be driven by zero hours contracts Managers Budgets, promotion Conflict, Directors may want to appoint from outside to get fresh ideas Competitors Small local independents see Tesco’s as a threat Conflict, Board want to continue opening stores

28. The potential for conflict between shareholders and other stakeholders Problems are likely to rise between the 2 groups when their objectives are in direct conflict: Shareholders and employees: meeting employee objectives come at a cost (higher wages, perks, training) = negative impact on profit = conflict arise. Shareholders and customers: higher prices boost shareholder returns but reduce purchasing power of customers = conflict Shareholder and directors and managers: high remuneration may affect profits and dividends for shareholders, retaining profit for investment over paying dividends = conflict Shareholders and the environment: neglecting environmental responsibilities to try and maximise profit, destroying wildlife etc. = conflict Shareholders and the government: when a business breaks the law, avoiding tax payments = conflict

29. Question 2

30. Analyse Break down the content of a topic, or issue, into its constituent elements in order to provide an in-depth account and convey an understanding of it. Annotate Add to a diagram, image or graphic a number of words that describe and/or explain features, rather than just identify them (which is labelling). Assess Consider several options or arguments and weigh them up so as to come to a conclusion about their effectiveness or validity. Calculate Work out the value of something. Critically Often occurs before ‘Assess’ or ‘Evaluate’ inviting an examination of an issue from the point of view of a critic with a particular focus on the strengths and weaknesses of the points of view being expressed. A Level Business Exam Command Words

31. Define..., What is meant by… State the precise meaning of an idea or concept. There is usually a low tariff of marks for this. Describe Give an account in words of a phenomenon which may be an entity, an event, a feature, a pattern, a distribution or a process. For example, if describing a landform say what it looks like, give some indication of size or scale, what it is made of, and where it is in relation to something else (field relationship). Discuss Set out both sides of an argument (for and against), and come to a conclusion related to the content and emphasis of the discussion. There should be some evidence of balance, though not necessarily of equal weighting. Evaluate Consider several options, ideas or arguments and come to a conclusion about their importance/success/worth. Examine Consider carefully and provide a detailed account of the indicated topic. Explain.., Why.., Suggest reasons for... Set out the causes of a phenomenon and/or the factors which influence its form/nature. This usually requires an understanding of processes. Explanation is a higher-level skill than description and this is often reflected in its greater mark weighting. A Level Business Exam Command Words

32. A Level Business Exam Command Words Interpret Ascribe meaning. Justify Give reasons for the validity of a view or idea why some action should be undertaken. This might reasonably involve discussing and discounting alternative views or actions. Each of the views present or options available will have positives and negatives. For the outcome(s) chosen, the positives outweigh the negatives. Students should be able to explain all of this review process. Outline..., Summarise... Provide a brief account of relevant information. To what extent... Form and express a view as to the merit or validity of a view or statement after examining the evidence available and/or different sides of an argument.

33. Assessment Objectives

34. How to answer a 20-mark question?

35. Evaluate the importance of Corporate Social Responsibility to SuperGroup’s stakeholders. (20) Evaluate Consider several options, ideas or arguments and come to a conclusion about their importance/success/worth.

36. Achievable Marks Knowledge 4, Application 4, Analysis 6, Evaluation 6. (20)

37. Part one – definitions Candidate shows knowledge of Corporate social responsibility and or stakeholders. CSR refers to the extent to which a business accepts obligations to society over and above the legal requirements • This usually refers in particular to treatment of employees, the environment and suppliers • Stakeholders are groups with a direct interest in the company’s operations

38. Part two Candidate applies knowledge of corporate social responsibility to SuperGroup stakeholders. • SuperGroup has a clear CSR position as outlined in the share offer prospectus • It is a member of the Supplier Ethical Data Exchange • It has expectations about what its clothing suppliers will and will not be involved in.

39. Part three Analysis is wide-ranging; three or more well explained reasons/causes/costs and/or consequences are outlined. • CSR is important to stakeholders such as suppliers because they want to be treated fairly and in a way that does not force them to behave unethically in order to keep the Superdry contracts • Clothing companies are particularly vulnerable to scrutiny from the media and pressure groups over issues such as child labour and sweat shops • Customers do not want to buy clothing that may be supplied by businesses who treat their employees badly • Part of Superdry’s brand appeal is its newness and the idea of breaking moulds – this would be damaged if CSR policies were broken or not followed • Celebrity endorsers are likely to desert the company if questions are raised about SuperGroup’s treatment of its stakeholders.

40. Part four Balanced conclusions and/or recommendations based on sound analysis of the business situation and case study information. • SuperGroup’s success is based on design, image and price – customers are less likely to be concerned with background issues such as CSR • Shareholders are concerned about the profit performance of the newly floated business, so they are less likely to be concerned with potentially costly issues such as changing suppliers • Stakeholders such as employees in the UK are more likely to be concerned with the basic wage and working conditions they face than ‘higher-minded’ issues often covered with CSR • Superdry is not engaged in many activities that damage the environment, so it is less likely to invite scrutiny from pressure groups on this issue • However, Superdry’s focus is on growth, so shareholders are interested in how this could affect their returns. If CSR is important, it is likely to be in terms of how suppliers are treated, particularly if they are pressured into increasing supply to support Superdry’s growth.

41. Setting marketing objectives Next Lesson 05-02-2025 7pm