The definition of a stakeholder is people or groups who have legitimate interest in activities of businesses and other organisations in their society.
The stakeholder concept is important for 2 main reasons. Firstly it emphasises the fact that stakeholder groups have differing interests. Secondly it highlights the relationship between businesses and their external environment.
There are 4 points that also need to be kept in mind when thinking about stakeholders:
• All businesses have internal stakeholders. They also have external stakeholders these are usually either strongly linked or affected by the business.
• A pretty obvious fact considering that stakeholders are human beings is that they can have differing interests which may conflict
• Culture, structure and control systems within a business will determine how conflicts, or trade-offs, are resolved, and in practice the interests of one stakeholder group often have a dominant position.
• Some stakeholder interests are protected by law, but not all. The interests of other stakeholders are protected, if at all, only by regulation or management discretion whereas owners and shareholders are protected by property and company law.
All businesses have difficulty balancing the interests of their different stakeholders, mainly when the political reality is that different groups have varying amounts of power. Such as:
• Commercial businesses have structures that recognise the dominance of shareholders. However, the legislative and regulatory environment, over, for example CO2 emissions, is increasingly imposing constraints to protect the interests of the other stakeholder groups.
• Voluntary organisations are typically less tightly structured, and priorities may depend on the power of their management committees or trustees. Employees may exhibit greater dominance than those in the commercial sector.
• Government bodies are answerable to taxpayers and to service users, both of which are represented by elected representatives (politicians); in some instances, the reality is that the dominant stakeholder is the employee.