Stakeholders are groups with an interest or claim in a company.
Key internal stakeholders:
1. Stockholders are a unique group of stakeholders, and arguably the most important because they supply the risk capital necessary for business. They seek immediate return in the form of dividends and growth to supply increasing dividends and stock price.
2. Employees look to the company for compensation in exchange for their labor and skills. They seek immediate compensation as well stability and growth in compensation.
3. Managers are also employees but they enjoy a substantial, asymmetric information advantage that can lead to significant problems in the principal agent relationship.
4. Members of the Board of Directors are supposed to monitor and evaluate the performance of the senior managers of the company and look out for the best interests of the shareholders. Directors also enjoy asymmetric information advantage and risk becoming too close to managers, which can lead to favoring the interests of the managers they should be supervising.
Key external stakeholders:
1. Customers buy company products, prefer a variety of products, and seek a stable, dependable relationship with the company they are buying these products from. But they also seek lower prices. The desire for an ongoing relationship is consistent with the company's desire for profits but the lower price goal is not. If dissatisfied, the customers can stop buying. Customers are generally not averse to the company earning a profit, but these customers also do not want to overpay.
2. Suppliers also seek stable, long-term relationships, but also want higher prices from the company, which will reduce company profits.
3. Creditors are essentially another supplier, but one which supplies debt capital and is paid in interest. Creditors value stability or improvement in the company's credit quality.
4. Unions are viewed as an external stakeholder representing internal employees. They generally seek higher wages and compensation for their members, with potentially negative implications for short run profit and long-run survivability for the company.
5. Governments provide rules and regulation and they expect compliance.
6. Local communities provide infrastructure and expect good citizenship.
7. The general public also provides national infrastructure to the firm in exchange for an increase quality of life due to the existence of the firm.
The purpose of the stakeholder impact analysis (SIA) is to force the company to identify which stakeholder groups are most critical to the company and meet the needs of the most important stakeholders. The SIA should:
1. Identify the relevant stakeholders.
2. Identify the interests and concerns of each group.
3. Identify the demands of each group on the company.
4. Prioritize the importance of various stakeholders to the company.
5. Identify the strategic challenges these conflicting demands pose.
Stakeholders are not always in conflict. Many stakeholders are also shareholders. The general public can be shareholders, as are many employees. Employee stock ownership programs in the US have increased the ownership by employees in their employer's stock. Even when there is conflict between stakeholders, in the long run, the twin strategies of maximizing ROIC and growth maximizes the funds available for division among the stakeholders. While not minimizing the real conflicts among stakeholders, all are served by a dual focus on ROIC and growth.