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Cambridge International AS & A Level Business · 9609 · AS Level
1.5 Stakeholders in a Business
This topic examines the groups that have an interest in a business, what they expect from it, how much influence they can have, and why conflicts often arise when managers try to satisfy different stakeholder objectives.
Exam-focusedStakeholder analysisInstant-feedback questions
What you need to know
Strong answers do not simply name stakeholder groups. You should be able to explain what each stakeholder wants, what influence it has, how a business decision affects it and why the importance of different stakeholders changes with context.
High-grade habit: when analysing stakeholders, select the most relevant groups for the case. Then link the business decision to each group’s objectives, likely response and power. Avoid listing every possible stakeholder without developing the analysis.
Subtopics
These follow the textbook table of contents. Select a subtopic to jump directly to it.
1.5.1
Business stakeholders
What is a stakeholder?
A stakeholder is an individual or group with an interest in the activities and decisions of a business. Businesses depend on many stakeholders and their decisions can create benefits or costs for different groups.
StakeholderAn individual or group with an interest in a business.
Example: when a manufacturer opens a new factory, owners may expect higher returns, employees may gain jobs, suppliers may receive more orders, the government may receive more tax revenue and the local community may experience both employment benefits and possible traffic or pollution costs.
Internal and external stakeholders
Internal stakeholders
People within the business, especially owners/shareholders, managers and other employees.
External stakeholders
Groups outside the business, such as customers, suppliers, banks and other lenders, government and the local community.
Internal stakeholderAn individual or group within the business.
External stakeholderAn individual or group outside the business that is affected by, or can affect, the business.
Main stakeholder groups and what they want
| Stakeholder | Typical interests / objectives | What the business may expect from them |
|---|---|---|
| Owners / shareholders | Profit, dividends, rising business value, information and effective management. | Investment, support for suitable long-term decisions and fair treatment of managers. |
| Managers | Appropriate rewards, authority, career opportunities and resources to meet objectives. | Competent decisions, confidentiality and effective leadership. |
| Employees | Fair pay, job security, safe conditions, respect, communication and opportunities for development. | Reliable attendance, effective work and appropriate standards of behaviour. |
| Customers | Suitable quality, value for money, reliable supply, honest information and good service. | Payment and responsible use of the product or service. |
| Suppliers | Prompt payment, predictable orders and clear communication. | Correct quality, quantity and delivery at the agreed time. |
| Banks / lenders | Repayment of loans and interest on time, plus reliable financial information. | Finance on agreed terms and reasonable notice if lending conditions change. |
| Government | Taxes, legal compliance, employment, economic activity and responsible behaviour. | Clear laws, public services, infrastructure and a stable business environment. |
| Local community | Jobs and investment with limited noise, congestion, pollution or other negative effects. | Co-operation with legitimate business activity and participation in consultation where appropriate. |
Rights and responsibilities
The relationship between a business and its stakeholders is normally two-way. Stakeholders may have legal or contractual rights, while also having responsibilities towards the organisation.
Example: employees have the right to be paid according to their contract and treated lawfully, but they also have a responsibility to complete their work effectively. A supplier has a right to receive agreed payment, but is expected to deliver the correct quantity and quality on time.
Exam link: a responsibility is not the same as an objective. An employee may have the objective of higher pay, while also having the responsibility to perform their role properly.
Why shareholders invest
Shareholders own a company through the shares they hold. They may invest for two main financial reasons:
- Capital gain: if the company performs well, the market value of its shares may rise.
- Dividends: shareholders may receive part of the company’s profit as a payment on each share owned.
DividendA payment made from company profits to shareholders as a return on their investment.
Shareholders may also influence the business through voting rights. Larger shareholdings normally mean greater voting influence. Shareholders receive company information and can question directors at the annual general meeting.
Worked example: if a company declares a dividend of $0.40 per share and an investor owns 2,500 shares, the investor receives $1,000 in dividends: 2,500 × $0.40.
1.5.2
The relative importance and influence of stakeholders on business activities
Business decisions and stakeholder responses
Almost every major business decision affects stakeholders. The effect may be positive for one group but negative for another, so managers have to anticipate how important groups are likely to respond.
| Business decision | Possible stakeholder effect | Possible response |
|---|---|---|
| Reduce the workforce | Lower costs may benefit owners, but employees face insecurity or job losses. | Employees may leave, protest or take industrial action. |
| Increase selling prices | Higher margins may benefit owners, but customers receive worse value. | Customers may switch to competitors. |
| Expand production | Suppliers may gain orders and the community may gain jobs, but local traffic or pollution may rise. | Suppliers may invest; local residents may support or oppose expansion. |
| Delay supplier payments | The business preserves cash, but suppliers experience cash-flow pressure. | Suppliers may demand payment on delivery or stop supplying. |
How stakeholder aims influence business decisions
Customers
Where customers have many alternatives, they can strongly influence price, quality, service and product decisions because they can switch suppliers.
Suppliers
A critical supplier with a unique component may have significant influence, while a supplier offering an easily replaceable standard item has much less power.
Owners / shareholders
Owners may influence objectives and strategy directly. In companies, large shareholders can use voting rights to influence directors and major decisions.
Shareholder concept and stakeholder concept
Shareholder concept
The business gives priority to the interests of its owners. Managers focus strongly on profit, dividends and the value of the business while meeting legal obligations to other groups.
Stakeholder concept
The business treats a wider range of stakeholders as important partners and considers their interests when making decisions, even where doing so goes beyond the legal minimum.
Evaluation: the stakeholder approach may increase some short-term costs, but better relationships can improve employee loyalty, supplier flexibility, customer trust, reputation and resilience. The effect depends on whether these benefits outweigh the extra cost and whether stakeholder expectations can realistically be balanced.
Why a business should be accountable
Accountability means being answerable for decisions and their effects. Some accountability is required by law; businesses may also choose to go further because maintaining stakeholder trust can support long-term success.
- Employees may expect safe and fair treatment.
- Customers expect truthful information and appropriate product standards.
- Investors expect accurate information about performance and risk.
- Suppliers expect fair dealing and payment according to agreed terms.
- Communities may expect consultation where business activity affects local life or the environment.
What determines stakeholder influence?
Not every stakeholder has the same power. Influence depends on the circumstances and can change over time.
Dependence
The more the business depends on a stakeholder, the greater that stakeholder’s potential influence.
Size / control
A shareholder with a large stake normally has more influence than one with very few shares.
Alternatives
A supplier is more powerful if there are few substitutes; customers are more powerful when they can easily switch.
Organisation
A well-organised stakeholder group, such as a trade union or coordinated pressure group, may exert more influence than isolated individuals.
Stakeholder mapping: power and interest
A stakeholder map helps managers decide how much attention different groups may require by considering both their power and their level of interest.
| Low interest | High interest | |
|---|---|---|
| Low power | Minimal effort Monitor but do not devote excessive management time. | Keep informed Provide useful information and maintain communication. |
| High power | Keep satisfied Avoid actions that create unnecessary opposition. | Key players Manage closely because they are both influential and highly interested. |
Example: a major investor with a large shareholding and strong interest in strategy is likely to be a key player. A small supplier of an easily replaced item may have much lower influence.
Stakeholder conflict
Stakeholders often want different things, so managers may not be able to satisfy everyone at the same time.
| Potential conflict | Why it occurs |
|---|---|
| Shareholders vs employees | Investors may want lower costs and higher profit, while employees may want higher wages and greater job security. |
| Customers vs shareholders | Customers want low prices and high quality; shareholders may prefer higher margins and lower costs. |
| Community vs growth | Expansion may create jobs but also additional traffic, noise, pollution or pressure on local services. |
| Government vs customers | Environmental or safety requirements may raise business costs and result in higher prices. |
High-grade evaluation: do not assume the most powerful stakeholder is always the same. A lender may become especially important when the business needs emergency finance; skilled employees may become more powerful when labour is scarce; customers gain influence when switching is easy.
How changing business objectives affect stakeholders
When objectives change, the treatment of stakeholder groups may also change. A stronger environmental objective may increase spending on cleaner production and benefit the community, but could reduce short-term profit. A stronger profit objective may lead managers to control wages, reduce training or negotiate harder with suppliers.
Objective changese.g. more growth, profit or sustainability
→Business decisions changeinvestment, wages, sourcing, prices, production
→Stakeholder effectsdifferent benefits, costs and responses
Context example: if a retailer shifts from rapid growth to cash preservation, it may postpone new stores, reduce orders from suppliers and limit recruitment. Owners may welcome stronger cash control, while suppliers and potential employees may lose opportunities.
1.5 revision checklist
Define a stakeholder and distinguish internal from external stakeholders.
Identify the main stakeholder groups of a business.
Explain stakeholder objectives, rights and responsibilities.
Explain why the relationship between a business and stakeholders is two-way.
Explain why shareholders invest and how dividends work.
Analyse how business decisions can affect different stakeholders.
Explain how stakeholders can respond to business decisions.
Assess how employees, customers, suppliers and owners can influence decisions.
Distinguish the shareholder concept from the stakeholder concept.
Explain why businesses may be accountable to stakeholders.
Use a power-interest stakeholder map.
Explain why stakeholder power varies with context.
Analyse conflicts between stakeholder objectives.
Assess how changing business objectives can affect stakeholders.
Questions open in a pop-up. Each answer is marked immediately, with an explanation so you know why it is correct or incorrect.