Stakeholder Impacts (AQA A Level Business): Revision Note

How stakeholders affect business decisions

• Stakeholders are individuals or groups with an interest in, or affected by, the activities and performance of a business

  • Information on the different types of stakeholders can be found here

• Stakeholders do not simply hold different levels of power and interest

  • Many are able to take direct action to try to change a business's decisions

• The type of action available differs between stakeholder groups, and the resulting impact on the business can be financial, non-financial, or both

  • Weighing up these possible actions and their consequences helps a business judge whether a decision is genuinely in its long-term interest

Actions stakeholders can take to influence business decisions

Voting and shareholder resolutions

• Shareholders can vote against management proposals, or table their own resolutions at a company's Annual General Meeting (AGM)

Example

Shareholder campaign group Follow This has repeatedly tabled resolutions at Shell's AGM calling for tougher climate targets, forcing the board to publicly respond and justify its strategy

Building a stake and campaigning publicly

• Large investors can buy shares specifically to gain influence and then use that position to pressure management for change

Example

Investment firm Trian Partners bought a large number of shares in Unilever from 2022, then publicly pushed the company to become simpler and more focused. This pressure contributed to Unilever's 2024 decision to separate its ice cream business, including brands such as Magnum and Ben & Jerry's, into its own company

Selling shares or withdrawing investment

• Investors who disapprove of a decision can sell their shares, pushing down the share price, or refuse to provide further funding

Industrial action

• Employees, with the support of trade unions, can strike, work to rule or refuse to work overtime, disrupting normal operations until demands are addressed

Example

The RMT and Nautilus International unions organised protests against P&O Ferries after the company dismissed around 800 seafarers without notice in March 2022

Boycotts and switching to competitors

• A boycott is a deliberate refusal by consumers or groups to purchase from a business, used as a form of protest to pressure it into changing its behaviour

• Customers can stop buying from a business, directly reducing its revenue, or switch loyalty to a rival brand

Example

Major stockists including Next, ASOS and Zalando dropped boohoo's brands in 2020 following reports of poor working conditions at supplier factories in Leicester, while many customers also chose to boycott the brand directly

Public protest and direct action

• Pressure groups can stage demonstrations or disrupt operations to draw media attention to an issue

Example

Just Stop Oil activists disrupted BP and Shell forecourts, as well as sponsored sporting events such as the Grand National and Wimbledon, to pressure fossil fuel companies over climate policy

Legal action

• Stakeholders can bring lawsuits or demand judicial reviews to block, delay or challenge a decision

Example

ClientEarth, an environmental law group that owns a small number of Shell shares, took legal action against Shell's board of directors in 2023

It argued that the directors were not doing enough to manage the risks that climate change poses to the company

Lobbying government and regulators

• Stakeholders can pressure politicians or regulators to intervene through new legislation, fines or formal investigations

Example

Sustained public and political pressure over Thames Water's sewage discharges contributed to regulator Ofwat imposing record fines and increasing its enforcement action against the company

Restricting finance and credit

• Lenders, suppliers and credit rating agencies can refuse further credit, call in existing loans, or downgrade a business's credit rating

Example

When the discount shop Wilko got into serious money trouble in 2023, the companies that insure supplier payments stopped covering it, so suppliers started asking to be paid upfront before sending any goods

At the same time, banks would not lend Wilko the emergency money it needed

This loss of financial support was a big reason why Wilko collapsed, and around 12,500 people lost their jobs

The impact of stakeholder actions

Financial impacts

Falling share price

• Reduced investor confidence following stakeholder action can wipe significant value off a public limited company almost immediately

• E.g. boohoo's share price fell sharply once the 2020 factory conditions scandal became public

Higher cost of finance

• A lower credit rating, as with Thames Water, means lenders charge higher interest rates to compensate for increased perceived risk

• This reduces future profit

Lost sales and revenue

• Boycotts and lost stockists directly reduce the volume of sales a business can achieve, even if the underlying product has not changed

Increased costs

• Compensation payments, legal fees and improved pay settlements agreed to end industrial action all raise a business's costs without increasing output

Reduced profit margins

• The combined effect of lost revenue and higher costs can reduce profitability, even for a business that was previously performing well

Non-financial impacts

Reputational damage

• Negative publicity can take years to repair, and may affect customer trust and staff recruitment long after the original incident

Diverted management time

• Dealing with legal action, media enquiries and stakeholder complaints pulls senior managers away from long-term strategic priorities and into short-term crisis management

Delayed or blocked strategic decisions

• Legal challenges can hold up major projects for years

• E.g. Legal action temporarily halted Heathrow's third runway expansion

Industry-wide regulatory change

• Strong stakeholder pressure can lead to new legislation affecting an entire sector, not just the business originally involved

• E.g. The UK government introduced the Seafarers' Wages Act in 2023 in response to the P&O Ferries dismissals

Reduced staff morale

• Employees who witness a business treating other stakeholders poorly may become less engaged or more likely to leave, even if they were not directly affected themselves