Stakeholder and Shareholder influences - 3.4.3

Stakeholder - a person, group or organisation that has interest or concern in the activities or decision making of a business.

Shareholders - defined as any person, company or other institution that owns at least one of a company's shares. They're often one of the source of finance for the business; their financial risk is limited to the value of their shareholding.

STAKEHOLDER INFLUENCES

The stakeholder concept suggests that a business' responsibilities are towards all of its stakeholders. Therefore the business must consider all of its stakeholders in it decisions and objectives, for example consult with stakeholders before making strategic decisions. They must also treat stakeholders fairly e.g. prompt payment to suppliers, fair pay and conditions for employees, as well as addressing the business' impact on the wider community such as environment footprint. Stakeholder influences should be seen as a genuine concern and not just a PR exercise. 

Stakeholders are increasingly being seen as important to the business and certainly can influence corporate strategy. Unlike shareholders, stakeholders; objectives are more diverse and can be less focused on the short-term and more on the long-term goals of the business. 

Benefits of a stakeholder approach include higher levels of motivation among staff and managers, improved perception of the brand by customers and the wider community, greater research and innovation, sustainable organic growth and, in the longer term, improved profits and dividends. 

Drawbacks include slower decision-making, a risk of losing competitive advantage in the short-term, and lower profits and dividends.

SHAREHOLDER INFLUENCES

The shareholder concept suggests that a business' responsibilities are solely aimed at meeting the requirements of the shareholders. Shareholders have direct influence on the business as they can attend the company's annual general meeting and voice concerns and can appoint directors to the board running the company. Therefore, it has profit maximisation as its main corporate objective. Higher profits will lead to higher dividends and shareholders will receive income growth   (an increase in the income received from dividends). Good performance of the company will see its share price rise and shareholders will receive capital growth (a rise in the value of their assets).

Benefits of a shareholder approach can be increased short-term profits, consistent decision-making, higher revenue and lower investment costs. Drawbacks are that this approach can end up ignoring and isolating all other stakeholders, including customers, it can be seen as a short-termist approach, growth tends to be inorganic, which risks a lack of long-term sustainability, and a lack of investment in research and innovation may ultimately lose the company its competitive advantage.