Session 3

• Definition: Stakeholder 


  Are those individuals or groups who depend on an organization to fulfil their own goals and on whom, in turn, the organization depends.

  Ex

  • Owners/shareholders
  • Employees
  • Managers
  • Customers
  • Suppliers
  • Creditors
  • The local Community
  • The government
  • Directors
  • Unions
• Who is this?

  Profit is a consequence of the company’s activity, not its root cause

  Ed Freeman (1984)
• Who is this?

  • Maximize profit and return them to shareholders
  • The shareholders decide what social initiatives to take part in

  Milton Friedman (1970)
• Ed Freeman (1984)

  • Profit is a consequence of the company’s activity, not its root cause
• Milton Friedman (1970)

  • Maximize profits and return them to shareholders
  • The shareholders decide what social initiatives to take part in
• Who is this?

  The responsibility of a business is to increase its profit. Then distribute it to shareholders.

  Milton Friedman (1970)
• Who is this?

  The purpose of the firm is to meet the needs of all stakeholders and therefore consider profit.

  Ed Freeman (1984)
• Who is this?

  Firm -> Profit -> Shareholders

  Milton Friedman (1970)
• Who is this?

  Firm - > Stakeholder -> Profits


  Ed Freeman (1984)
• Friedman vs Freeman

  • Milton Friedman, argues that businesses have only one social obligation : to increase profit to the benefit of shareholders.
  • Ed Freeman, argues that businesses have a responsibility to many parties (stakeholders) in society, and so they cannot focus only on increasing profits. They cannot live in a vacuum if they want profit.
• Who is this?

  Argues that businesses have only one social obligation: to increase profits to the benefit of shareholders. 

  Milton Friedman
• Who is this?

  Argues that businesses have a responsibility to many parties (stakeholders) in society, and so they cannot focus only on increasing profits. They cannot live in a vacuum if they want profit.

  Ed Freeman
• The stakeholder concept  was first used in a 1963 internal memorandum at the Stanford Research Institute. It defined stakeholders as “those groups without whose support the organization would cease to exist”
• In the last decades of the 20th century, the word “STAKEHOLDER” has become more commonly used to refer to a person or group that has a legitimate interest in a project or entity. 
• In discussing the decision-making process for institutions – including large business corporations, government agencies, and non-profit organizations – the concept has been broadened to include everyone with an interest (or “stake”) in what the entity does.
• Definition: Stakeholder

  • A stakeholder is an individual or group that has a legitimate interest in an organization
  • A corporate stakeholder is a person or group who can affect or be affected by the actions of a business/ organization
• Definition: internal stakeholder


  are groups within an organization or people who work directly within the organization, such as employees, managers, owners, and investors.
• What is this?

  Are groups within an organization or people who work directly within the organization, such as employees, managers, owners, and investors

  Internal stakeholders
• Definitions: External stakeholders


  Are groups outside an organization or people who are not directly working within the organization but are affected in some way from the decisions of the organization, such as customers, suppliers, creditors, community, government.
• What is this?

  Are groups outside an organization or people who are not directly working within the organization but are affected in some way from the decisions of the organization, such as customers, suppliers, creditors, community, government…

  External stakeholders
• Internal stakeholders and their interests

  Main internal actors:

  1. For financial issues: (capital of the firm, when a specific contract exists): shareholders, property of shares of the firm.
  2. For strategic decisions: Top management of the organization: they define the strategy, implement the strategy, coordination of the functions-components.
• Internal stakeholders and their interest

  Main internal actors:

  3. For labour force issues:

  Employees of the firm (2 categories):

  • Managers (double status)
  • Manage and control operations
  • Evaluate their subordinates (employees) and their performance
  • Provide incentive/rewards/sanctions
  • Make the changes and adjustments
  • Make the operational decisions
  • Workers
  • Execute the process
  • Follow the rules
  • Make suggestions to improve the work and the working conditions
• Internal stakeholders and their interest

  Main internal actors:

  4. For negotiations issues: Union representatives

  • Identify and promote the needs of the employees they represent regarding topics such as working conditions, salaries, occupational H&S, fringe benefits, etc
  • Discuss/negotiate at the bargaining table in order to improve the employees’ conditions
  • Defend the employees in front of the Employer or in front of a Court of Justice (Les Prud’hommes, in France) if there are legal issues: discrimination, downsizing…..
• External stakeholders and their interests 


  Main external actors:

  • Directly linked with the firm
  • Suppliers
  • Customers
  • Competitors
  • Indirectly linked with the firm
  • Governments, States, Public services
  • Society
  • Households
  • Groups of pressure, associations…
• External stakeholders and their interests

  The Government want the organization to pay taxes, to employ more people, to follow the laws, and to report truthfully its financial conditions

  Customers: want the organization to produce quality products and offer quality services at reasonable prices

  Suppliers: want the organization to continue to buy their products

  Creditors want to be repaid on time and full

  The community has a stake in the business as employer of local people. The community is also concerned about social and environmental issues
• Owners


  Interested in how much profit the organization makes (often a short term perspective)
• Managers


  Concerned about their salary and about the long term perspective of the operations of the firm
• Workers


  Want to earn high wages, keep their jobs, or maintain their employability
• Customers


  Want the organization to produce quality products at reasonable prices
• Suppliers


  Want the organization to continue to buy their products
• Creditors


  Want to be repaid on time and in full
• Community


  Has a stake in the organization as an employer of local people; organization's activity also affects the local environment
• Influence of stakeholders on a business objectives:

  Owners have a big say in how the aims of the business are decided, but other groups also have an influence over decision-making. 

  For ex: the directors who manage the day-to-day affairs of a company may decide to make higher sales a top priority rather than profits

  Customers are also key stakeholders. Businesses that ignore the concerns of customers find themselves losing sales to rivals
• Influences of stakeholders on business objectives:

  • In a small organization, the most important or primary groups of stakeholders are the owners, the staff and the customers
  • In a large organization, shareholders are the primary stakeholders as they can vote out directors if they believe they are running the business badly
• Explain this:

  
• Managing stakeholders

  • Don’t have the same level of attention on the organization and its strategy. 
  • Don’t have the same power of influence on the organization, its strategy and its survival. 
• Assessing business performance using accounts:

  • Information published by an organization helps stakeholders to judge how well it is performing. For ex, company reports detail the amount of profit being earned and set out the community policies of the business
• Meaning of assessing business performance using accounts

  • Owners can judge how well the business is performing in terms of financial aspects. Increased profits improve the chances of directors being re-elected at the next AGM
  • Rivals/competitors can compare the amount of profit they are making with the business
  • Pressure groups can find out about the environmental or the social policy of the business
• Different stakeholders have different objectives
• Business decision to move production overseas

  Reduces staff costs