Stakeholders are the pillars of a business, having shares in a company is a great opportunity to grow in the future but yeah it is also risky as well. Before doing investment in different sectors must learn all the important aspects of the organization.
What Are The Stakeholders In Business
Stakeholders are entities and individuals who can influence and are influenced by the operations of an organization. They rely on the organization to achieve their own objectives, and the company is reliant on them. There are three major types of stakeholders which are discussed below.
Main Types of stakeholders In Business
There are three basic types of stakeholders, which are the following.
What Are Internal Stakeholders
Internal stakeholders exist within the organization and are inextricably linked to the organization’s goals. Employees and managers are examples of internal stakeholders. Internal stakeholders expect the organization to provide them with a number of things, including Wages that are reasonable, Job stability, a Pleasant working environment, and Special offers.
What Are Connected stakeholders?
Internal stakeholders work for the organization, whereas external stakeholders do not. Individuals and entities with a financial stake in the organization are referred to as stakeholders. Stakeholders who are connected, for example
- Shareholders seek to maximize their wealth and ensure the long-term value of their investments.
- Banks/Loan Providers: expect prompt payment of dues as well as adherence to loan terms and conditions.
- Customers want reasonable costs, high quality, and excellent after-sales support.
- Suppliers are looking for prompt payment and a long-term connection.
If these desires are not met, the company may face negative consequences such as stockholders selling their shares, banks demanding immediate repayment of loans, suppliers refusing to furnish raw materials or demanding cash payments, and customers refusing to buy items.
What Are External stakeholders?
These are not involved in the day-to-day operations of the organization and have no financial ties to it. The activities of an organization have an impact on these stakeholders, who can also have an impact on the company. These are some examples of stakeholders and what they require from the company:
- The government seeks prosperity, increased employment, and adherence to laws and regulations.
- Pressure Groups: They seek to safeguard the environment from pollution while also ensuring that labor rights are respected.
Failure to meet the needs of external stakeholders could result in severe consequences such as government fines and penalties, as well as the suspension of activities. Failure to address the concerns of pressure organizations could result in a bad reputation.
What Is Agency Theory
Shareholders are the owners or principals in an organization, and they are the primary capital sources, according to agency theory. Directors are the agents appointed by shareholders to administer the corporation on their behalf.
According to the theory, the company’s and its stakeholders’ interests should take precedence over the directors’ personal interests. When making decisions, directors should ensure that they are considering all stakeholders and their interests.
What Is Mendelow’s framework?
Directors utilize Mendelow’s approach to identify the most important stakeholders and develop a strategy to meet their demands. The organization uses this framework to determine which stakeholders are most engaged in the day-to-day activities of the organization and have the capacity and influence to modify decisions. As a result, the company can select how to prioritize stakeholders and meet their needs.
High power low interest
These have a lot of clouts and can sway the organization’s actions. They show little interest in the organization’s day-to-day operations. This is where the government will fall. The government is unconcerned about what the organization does as long as the law and regulations are obeyed, but it does have the authority to shut down operations if it believes the laws are not being followed. Such stakeholders must be satisfied, and their demands must be addressed, in order for them to refrain from interfering with decision-making.
High power high interest
These are the most important people in a company, and all of the company’s decisions must be acceptable to them. They are involved in the day-to-day operations of the company and have the capacity to create a substantial impact if they so choose. This category includes major clients. They are not only interested in what the company is doing, but they also have the capacity to limit revenue drastically.
Low power low interest
These require the least amount of work. They are uninterested in the activities of the organization and have little authority to influence decisions. This group includes migrant workers, for example. They are recruited for a set length of time and hence have no interest in the company’s operations beyond that time frame and have no authority to influence choices.
Low power high interest
These are the people who should be kept up to date on the company’s actions. They don’t have the authority to make choices, but they are interested in what the company is doing. Management must persuade strategy opponents that the plans are legitimate; otherwise, they would attempt to obtain power by pressuring stakeholders in higher power groups, such as shareholders.
What is the importance of stakeholders in a company?
When a company starts growing and finds different sectors to work for to make a profit but does have not much power, in this case, stakeholders have the power to do so because of their interest in the business. The importance of stakeholders is very important for a company’s growth.
Who are the stakeholders in a project of a company?
A person who has an interest in the result of a project is termed as a stakeholder in a project, it can be an employee, customer, or even a project manager.
Chapter 1: Business transaction and documentation
Practice questions: FA1 practice questions
Chapter 2: Asset and liability In Accounting Equations
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Practice questions: Exam question for Posting transaction
Chapter 4: Receiving money and checking
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Chapter 5: Purchase day book and purchase return
Practice questions: Practice questions for the Purchase and purchase return day book