Key Outcomes:

Explain what is meant by 'stakeholder'

Differentiate between internal and external stakeholders

Analyze and comment on business responsibilities to stakeholders

Discuss possible areas of conflict between stakeholders

Evaluate ways in which conflicting stakeholder objectives might be recognized and responded
to by business (HL - only)
THE TRADITIONAL VIEW OF BUSINESS
The traditional view of business is often referred to as the shareholder concept. As shareholders are the
owners of the company, the firm has a legally binding duty to take decisions that will increase
shareholder value. Since directors and managers ultimately owe their position to shareholders, it is
important to keep them satisfied.
Recently, this limited view of business responsibility has been extended to include the interests not just
of the investors/owners but also of suppliers, employees and customers. The stakeholder theory or
concept is that there are many other parties involved and interested in business activity and that the
interests of these groups should be considered by business decision-makers.
1. INTERNAL STAKEHOLDER INTEREST
2. EXTERNAL STAKEHOLDER INTEREST
These stakeholders do NOT form part of the organization but have a direct interest or involvement in
the actions of the organization. Examples include:
EXAM TIP
Favorite examination questions ask students about:



The difference between internal and external stakeholders
The difference between stakeholders and shareholders
The different aims of stakeholder groups and how they conflict with each other
1. These important stakeholders own a company:
(a) The Board of Directors
(b) Shareholders
(c) Managers
2. Which of the following are not considered internal stakeholders?
(a)
(b)
(c)
(d)
Customers
Managers
Employees
Shareholders
3. Name the stakeholder that sells goods and services to another organization.
Business decisions can have both negative and positive effects on stakeholders, but it is rare for all
stakeholders to be either positively or negatively affected by any one business activity.
It is also possible for any one stakeholder group to experience both negative and positive effects from
the same business decision. This is why conflicts of interest between stakeholder groups with different
objectives can arise.
The table BELOW provides three examples of business decisions, and their possible effects on three
different stakeholder groups.
TOTAL: 16 marks
TIME: 25 minutes
1. Using examples from the case study, explain the differences between internal and external
stakeholders.
[4]
2. Evaluate the benefits and drawbacks of any two stakeholder groups resulting from this mine
project.
[6]
3. Discuss the ways in which GCM could reduce the impact of the disadvantages it has created for
stakeholder groups negatively affected by the mine.
[6]
The outcome of any negotiation will depend largely on the relative BARGAINING POWER of the
different stakeholders. (EXAMPLE: Large multinationals such as Honda and Ford will have better
bargaining power with their suppliers than mechanics operating as sole traders trying to negotiate prices
for motor vehicle parts)
(A)
STEP 1: Prioritize the interest of various stakeholders
STEP 2: How “close” is each stakeholder to decision making in the business> (Figure 1.4.1)
Figure 1 The comparative closeness of stakeholders to decision making
(B)
While it’s difficult to please all the stakeholders all the time, this form of mapping helps managers to:




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Prioritize their action
Identify stakeholders in quadrant A who will not receive much attention
Identify stakeholders in quadrant D who will receive the most attention
Identify stakeholders in quadrant B who need to be kept informed about decisions
Identify stakeholders in quadrant C who need to be kept satisfied through consultations
SHARED VALUE
This is a new concept whereby businesses create value for all stakeholders. The main idea behind
creating shared value is that the competitiveness of a company and the health of its local communities
are mutually dependent. Recognizing and capitalizing on the interconnectedness of societal and
economic progress has the potential to drive innovation, the next stage of global growth and to redefine
capitalism.