In this post you will understand a lots of important points about stakeholders and this is an important chapter for the F1/FBT exam.
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 types of stakeholders.
Shareholders are the owners or principals in an organisation, 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 above the directors’ personal interests. When making decisions, directors should ensure that they are considering all stakeholders and their interests.
Types of stakeholders
There are three basic types of stakeholders, which are following.
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, Pleasant working environment and Special offers.
Internal stakeholders work for the organisation, whereas external stakeholders do not. Individuals and entities with a financial stake in the organisation 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.
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.
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 clout 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 are 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.
Hopefully you like this post, must share it with your friends and classmates.
And if you are student of FA1 then must read our notes for FA1 it will help to understand all the concepts for FA1 exam.
Practice questions: ACCA-FA1 practice questions-chapter 1
Chapter 2: Asset and liability (Accounting Equations)
Practice question: ACCA practice questions for (Asset and liability) FA1 practice question
Practice questions: FA1 exam question for recording, summarizing & posting transaction
Chapter 4: Receiving money and checking
Practice questions: Practice questions for FA1 (Receiving money and checking)
Practice questions: Practice questions for Purchase day book and purchase return day book