Stakeholders: Groups or persons with an interest in what the organization does.
Management theory rejects the assumption that firms seek shareholder wealth maximization as too simplistic. Instead it states that the goals of an organization will reflect the power and interests of the most powerful stakeholder groups.
Types of Stakeholders
There are three broad types of stakeholder in an organization, as follows:
Internal stakeholders (employees, management)
Connected stakeholders (shareholders, customers, suppliers, financiers)
External stakeholders (the community, government, pressure groups)
Interests of stakeholders
The interests (or expectations) of stakeholders may be in conflict. Which expectations determine the
organisation’s objectives depends on the relative power of the stakeholder groups.
Stakeholders Conflict
Shareholders v managers/directors ——– Profit v growth
Shareholders v employees—— Cost efficiency v jobs
Shareholders v managers/directors ———- Growth via merger v independence
Customers v shareholders and managers/directors ——— Service levels v profits and costs
Shareholders v bankers ——– Profits v security (risk)
Power of stakeholders
Power is the means by which stakeholders can influence objectives. The different sources of power are shown below. Further aspects are considered in a later section on culture and governance.
Internal sources of power
Hierarchy: Formal power over others in the organization, e.g. senior management/directors. It can include the number of staff under individuals.
Influence/reputation: Informal power from either charismatic leadership or group consensus on a particular issue.
Relative pay
Control of strategic resources: e.g. trade unions when demand for output is high and labor is scarce, or size of budget allocation.
Knowledge/skills: Individuals deriving power from their specialist knowledge or skills.
Environmental control: Finance and marketing staff may have a more detailed knowledge of the external environment than other functional staff, e.g. production.
Strategic implementation involvement: Many people are involved in implementing strategy, and the use of personal discretion in decision making can give some element of power.
External sources of power
Control over strategic resources: Major suppliers, banks (finance) and shareholders (finance) can exert this form of power.
Involvement in implementation: Distribution outlets have greater knowledge of customer requirements than manufacturers and can therefore dictate to manufacturers, rather than vice versa.
Knowledge and skills: Subcontractors can derive power if they perform vital activities for a company.
External links: Public services often consult a wide variety of external stakeholders in decision making and, therefore, these stakeholders have an informal influence over the organization.
Social standing: For example ministers of religion.
Legal rights: For example government, planning authorities.
