Stakeholders, and public versus private sector objectives

Overview

Difference between a shareholder and a stakeholder, how employees can influence a firm's objectives and how customers can influence a firm's objectives.

What you need to know

Answer each one before you reveal it.

Questions from this subtopic

Each one with the model answer underneath.

1. 1

   Who are a firm's stakeholders?

   Model answer

   Stakeholders are the groups with an interest in what the firm does and who are affected by its decisions. They include shareholders and other owners, employees and their representatives, customers, suppliers, lenders, the government as tax collector and regulator, and the local community affected by the firm's operations. Each group has its own objectives, and these frequently conflict.

2. 2

   What is the difference between a shareholder and a stakeholder?

   Model answer

   A shareholder owns part of the company and has a legal claim on its profits and a vote at its meetings. A stakeholder is anyone affected by the firm's decisions, which includes shareholders but also employees, customers, suppliers and neighbours who have no ownership claim and usually no vote. All shareholders are stakeholders, but most stakeholders are not shareholders.

3. 3

   Analyse how employees can influence a firm's objectives.

   Model answer

   Employees supply the labour on which output depends, and collectively through a trade union they can withdraw it, so they have real bargaining power over pay, hours and conditions. Their influence pushes the firm towards higher wages, greater job security and investment in training, which raise costs and reduce short-run profit. Firms that ignore them face disputes, higher turnover and difficulty recruiting, so accommodating employee interests can also protect long-run profit through better productivity and retention.

4. 4

   Analyse how customers can influence a firm's objectives.

   Model answer

   Customers exert influence by switching to rivals, so a firm that raises prices or lets quality slip loses revenue. Where consumers care about how a product is made, they can push firms towards better labour standards, lower emissions or removal of certain ingredients even when no regulation requires it. Their power is greatest where substitutes are plentiful and switching costs are low, and weakest where the firm has substantial market power.

5. 5

   Analyse how suppliers can influence a firm's objectives.

   Model answer

   Suppliers determine the price, quality and reliability of inputs, so a powerful supplier can raise the firm's costs and squeeze its margin. Where a supplier is the sole source of a key component, it can also insist on contract terms, payment periods and minimum order sizes that shape the buyer's operations. Firms respond by seeking multiple sources, integrating backwards or building long-term partnerships that trade a higher price for greater security.

6. 6

   Analyse how the local community can affect a firm's objectives.

   Model answer

   A community affected by noise, traffic, emissions or the loss of green space can object to planning applications, campaign publicly and lobby elected representatives, all of which can delay or block expansion. A firm may therefore invest in noise reduction, local employment commitments or community facilities that reduce profit but secure permission to operate. The firm also depends on the community for its workforce, so a poor local reputation raises recruitment costs.

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