Stakeholders (VCE SSCE Business Management): Revision Notes
Stakeholders
What are stakeholders?
A stakeholder is any individual, group or organisation that can either affect or be affected by the operations of a business. Stakeholders exist at every level of the business environment and play a crucial role in determining business success. While ideally all stakeholders would support the business in achieving its objectives, in reality their interests often conflict with one another.
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Stakeholders come from three distinct levels of the business environment, each representing a different sphere of influence and interaction with the business:
Macro environment – The broad operating conditions in which a business operates and over which it has no control. This includes factors such as the general community and society.
Operating environment – The environment immediately external to a business with which it has close interaction when conducting business activities. This includes customers, suppliers and competitors.
Internal environment – The activities, functions and pressures that occur within a business over which it has control. This includes owners, directors, management and employees.
Key stakeholder groups
Different stakeholders have varying interests in the business, and these interests often depend on their relationship with the organisation. Understanding these interests is essential for managing stakeholder relationships effectively.
Internal stakeholders
Owners and shareholders
Owners (sole traders or partners) and shareholders (in companies) are the individuals who have invested capital in the business. Their primary interests include:
- Ensuring business profitability through effective operations
- Maintaining ethical business practices and socially responsible behaviour
- For shareholders specifically: receiving dividends (dividend yield) and seeing share value increase (capital appreciation)
- Ensuring the business operates sustainably for long-term returns
Capital Appreciation vs Dividend Yield: Shareholders have two main ways of earning returns on their investment. Capital appreciation refers to the increase in share value over time, while dividend yield represents the regular income payments distributed from company profits. Some shareholders prioritize immediate income (dividends), while others focus on long-term growth (capital appreciation).
Directors and partners
Directors of companies or partners in partnerships hold leadership positions with strategic responsibilities. Their interests typically include:
- Developing and directing major business decisions and strategies
- Ensuring strict adherence to corporate governance, including ethical and honest behaviour
- Maintaining social responsibility commitments
- Gaining personal power and status through their position
- Receiving appropriate remuneration, including salary and potentially share options
Corporate governance refers to the systems, principles and processes by which businesses are directed and controlled, ensuring accountability and transparency. Strong corporate governance protects stakeholder interests and builds trust in the organisation.
Management
Management sits between ownership and employees, responsible for implementing strategy and achieving objectives. Their interests include:
- Being involved in setting business goals and objectives
- Successfully achieving those goals and objectives
- Securing their position and advancing their career within the business
- Receiving fair remuneration packages, including salary and fringe benefits
- Gaining job satisfaction from their work
- Working for an ethical and socially responsible organisation
Fringe benefits are benefits received by employees in addition to their normal wage or salary, such as company cars, childcare provisions or enhanced superannuation contributions. These non-monetary benefits can significantly enhance employee satisfaction and retention.
Employees
Employees form the workforce that carries out the day-to-day operations of the business. Their interests centre on:
- Receiving fair wages or salaries
- Working in a non-discriminatory and ethical workplace
- Having opportunities for career advancement
- Gaining job satisfaction from their role
- Feeling secure about the long-term survival of their position
- Being employed by an ethical and socially responsible business
Operating environment stakeholders
Customers
Customers purchase the goods and services produced by the business. Their interests include:
- Obtaining quality goods and services at reasonable prices
- Receiving high levels of customer service, both before and after purchase
- Potentially establishing long-term relationships with businesses they trust
- Supporting Australian-made products and Australian-owned businesses
- Ensuring businesses act ethically and in a socially responsible manner
Customers increasingly make purchasing decisions based on a business's ethical stance and corporate social responsibility initiatives. This shift in consumer behaviour means businesses must consider their broader social impact to maintain customer loyalty.
Suppliers
Suppliers provide the materials, goods or services that businesses need to operate. Their interests include:
- Ensuring their customers' businesses remain profitable (so they receive payment)
- Being paid promptly according to agreed terms
- Establishing and guaranteeing long-term preferred supplier relationships
- Fair treatment and reasonable payment terms
Strong supplier relationships are essential for business success, as they ensure consistent quality and reliable supply chains.
Competitors
Competitors are business rivals operating in the same market offering similar products or services. Their interests include:
- Gaining a competitive edge over the business and capturing greater market share
- Differentiating their products or services from competitors
- Comparing and evaluating their performance against other businesses (benchmarking)
While competitors may seem adversarial, healthy competition can drive innovation and improve overall market standards. Businesses often study competitors to identify best practices and opportunities for improvement.
Macro environment stakeholders
Community and society
The broader community represents society's interest in business operations. Their concerns include:
- Benefiting from employment opportunities created by businesses
- Seeing businesses participate actively in their local communities
- Ensuring businesses act as socially responsible corporate citizens
- Confirming businesses operate ethically in all dealings
- Guaranteeing business operations are environmentally responsible and sustainable
The community increasingly expects businesses to contribute positively to society beyond simply generating profit. This shift represents a fundamental change in how business success is measured – not just by financial performance, but by social and environmental impact.
Stakeholder conflicts
Conflicts between stakeholders are inevitable because different groups have different priorities and interests. Understanding these potential conflicts helps businesses develop strategies to manage them effectively.
Common areas of conflict
Key Stakeholder Conflicts to Understand:
These conflicts frequently appear in assessments and demonstrate the complexity of stakeholder management.
Owners/directors vs shareholders: Disagreements often arise over profit distribution. Shareholders typically want substantial dividends paid out, whilst owners and directors may prefer retaining more profit to reinvest in growing the business.
Management vs suppliers: Suppliers seek guaranteed relationships with fair prices and prompt payment. Management, however, aims to obtain the highest quality goods at the lowest possible cost, whilst potentially negotiating extended payment terms to improve cash flow.
Business owners vs community: Business operations may cause environmental issues such as air or water pollution, particularly when owners fail to install or maintain appropriate equipment. Communities want to live in environmentally safe areas free from pollutants and health hazards.
Management vs customers: Conflicts can arise when management reduces the quality of goods and services without corresponding price reductions. Customers expect quality products at reasonable prices and feel aggrieved when they perceive they are being overcharged or under-serviced.
Managing stakeholder conflicts
Successful businesses develop strategies to overcome or satisfy these varying interests. This might include:
- Transparent communication about business decisions
- Balancing short-term demands with long-term sustainability
- Establishing clear policies on profit distribution
- Implementing environmental protection measures
- Maintaining consistent quality standards
- Regular stakeholder engagement and consultation
Effective stakeholder management requires businesses to prioritize and balance competing interests. While it's impossible to satisfy all stakeholders completely, transparent communication and fair decision-making processes can minimize conflicts and build trust.
Corporate social responsibility
Corporate social responsibility (CSR) represents the ways businesses address their impact on society and the environment. CSR is traditionally divided into four key areas:
Four areas of CSR
Environmental responsibility: Businesses must consider their environmental impact and work towards sustainable operations. This includes reducing carbon emissions, minimising waste, adopting sustainable packaging, and protecting natural resources.
Philanthropic responsibility: This involves businesses contributing to society through charitable activities, community support programmes and social initiatives that benefit those in need.
Ethical responsibility: Businesses must operate according to moral principles, ensuring fair treatment of all stakeholders, honest business practices, and transparent operations.
Economic responsibility: Whilst pursuing profit, businesses must do so responsibly, ensuring fair wages, reasonable prices, and sustainable economic practices that don't exploit workers or customers.
Benefits of CSR
Businesses that demonstrate strong corporate social responsibility can benefit in numerous ways:
Enhanced reputation: Operating responsibly creates a positive public image, which can differentiate the business from competitors and strengthen brand value.
Improved employee satisfaction: Internal stakeholders (employees) often feel greater satisfaction, motivation and loyalty when working for socially responsible businesses. This aligns with human resource objectives of reducing staff turnover and improving employee satisfaction.
Increased customer loyalty: When businesses successfully communicate their positive CSR activities to external stakeholders, particularly customers, they can increase consumer satisfaction and trust, resulting in improved customer loyalty.
Competitive advantage: Demonstrating high levels of CSR provides a point of differentiation from competitors, particularly as consumers increasingly consider ethical factors in purchasing decisions.
CSR in practice: Australian packaging initiatives
Real-World Example: Australian Packaging Covenant
The Australian Packaging Covenant represents businesses' commitment to environmental responsibility. The Strategic Plan established targets, with revised 2025 Targets including:
- 100% reusable, recyclable or compostable packaging
- 70% of plastic packaging being recycled or composted
- 50% average recycled content included in packaging
- Phasing out problematic and unnecessary single-use plastics
Major Australian retailers have embraced these targets:
Woolworths has adopted the strategy "Growing greener every day", redesigning packaging to use 75% less plastic and implementing the REDcycle Programme, which has collected over 900 million pieces of soft plastics since 2017. The business aims for 100% of Home Brand packaging to be reusable, recyclable or compostable by 2023.
Coles developed the "Together to Zero" sustainability strategy, committing to 100% renewable electricity by June 2025 and net zero greenhouse gas emissions. The business removed single-use plastic tableware from sale in July 2021, diverting an estimated 1.5 million kilograms of plastic from landfill annually.
Legal requirements for CSR
The Competition and Consumer Act 2010 (Commonwealth) establishes guidelines for businesses regarding disclosure of product information. Businesses must provide accurate information about product performance, composition, contents, design, construction and packaging.
Many businesses go beyond legal compliance by voluntarily adopting higher standards of corporate social responsibility, recognising that stakeholders increasingly expect businesses to consider their broader impact on society and the environment.
Exam guidance
When analysing stakeholders in assessment tasks:
Command Words and What They Require:
For 'identify' questions: Clearly name the stakeholder group and specify their relationship to the business (e.g., "Employees are internal stakeholders who work directly for the business").
For 'describe' questions: Provide detail about stakeholder interests and how they relate to business operations (e.g., "Customers are interested in obtaining quality products at reasonable prices and receiving excellent customer service").
For 'discuss' questions: Present balanced arguments covering different perspectives on stakeholder issues. Consider both positive and negative impacts, and acknowledge that stakeholder interests often conflict.
For 'analyse' questions: Break down stakeholder relationships, examining causes and effects. Consider how stakeholder interests influence business decisions and how business actions impact different stakeholder groups.
For 'evaluate' questions: Make judgements about effectiveness of business strategies in managing stakeholder relationships. Support your evaluation with evidence and consider both short-term and long-term implications.
Remember!
Key Concepts:
- Stakeholders exist at three levels: macro (broad environment), operating (external interactions) and internal (within the business)
- Different stakeholder groups have different, often conflicting interests in the business
- Successful businesses develop strategies to balance competing stakeholder demands
- Corporate social responsibility encompasses environmental, philanthropic, ethical and economic responsibilities
Critical Stakeholder Groups:
- Internal: owners/shareholders, directors/partners, management, employees
- Operating: customers, suppliers, competitors
- Macro: community and society
Important Terminology:
- Stakeholder: any party that can affect or be affected by business operations
- Fringe benefits: additional employee benefits beyond basic salary
- Ethics: moral principles guiding business behaviour
- Corporate governance: systems ensuring accountability and transparency
- CSR: business responsibility towards society and the environment
Exam Tips:
- Always consider multiple stakeholder perspectives when analysing business decisions
- Link stakeholder interests to specific business objectives and strategies
- Use real-world examples to support your arguments about stakeholder management
- Remember that stakeholder conflicts are normal and require careful management