Study notes

Managing stakeholder power and influence

How should a business respond to variations in stakeholder power and influence? We provide some guidance on the approaches often taken.

High level of power

Key players
Take notice of them

Keep them satisfied

Low level of power

Communicate regularly with them

Can usually be ignored

In handling its stakeholders, a business also has to accept that it will have to make choices. It is rare that “win-win” solutions can be found for key business decisions. Almost certainly the business cannot meet the needs of every stakeholder group and most decisions will end up being “win-lose”: i.e. supporting one stakeholder means another misses out.

There are often areas where stakeholder interests are aligned (in agreement) – where a decision can benefit more than one stakeholder group. In other cases, there is a clear conflict of interest. Here are some common examples:

Where Stakeholder Interests are Aligned

Where Stakeholder Interests Conflict

Shareholders and employees have a common interest in the success and growth of the business


High profits lead not only lead to good dividends but also greater investment (retained) in the business


Suppliers have an interest in the growth and prosperity of the business


Local community, employees and shareholders benefit from business involvement in the community

Wage rises might be at the expense of lower profits and dividends


Managers have an interest in organisational growth but this might be at the expense of short term profits


Expansion of production activity might cause extra noise and disruption in local community

There are two main approaches to handling the often conflicting needs of stakeholders:

Shareholder Approach

Stakeholder Approach

The traditional approach
Business (management) acts in best interest of shareholders / owners
Principal aim is to maximise shareholder returns
Main focus is on growth & profit

Increasingly popular
Business takes much more account of wider stakeholder interests
Approach based on consultation, agreement, cooperation
E.g. social and environmental concerns become more important

Over the years various techniques and organisational models have been developed which help businesses handle their relationships with key stakeholder groups. Some of the most important are summarised below:

Approach

Description

Workers Councils

Compulsory for some larger firms in the EU
Brings worker representatives from across departments & activities for regular discussion of business issues

Stakeholder Directors

Outside representatives who hold a non-executive position on the Board Many UK plcs – particularly those selling direct to consumers and households, have taken steps to reflect customer interests on the Boards

Arbitration / Conciliation

Formal processes of resolving conflicts between employer and employees (e.g. ACAS)
Also applies to settling disputes between firms and their suppliers (e.g. negotiating agreement on contractual disputes rather than resorting to legal action)

Share options & other performance-related pay

Widened participation of share ownership amongst all employees, helps align interests of shareholders and employees

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