The Influence of Stakeholders (Cambridge (CIE) A Level Business): Revision Note

Business accountability to its stakeholders

• Being accountable means a business being responsible for its actions and decisions and is willing to explain them to those stakeholders affected

Why do businesses need to be accountable?

1. Stakeholders have power and influence

• If stakeholders feel ignored or treated unfairly, they can harm the business

  • Shareholders can vote at meetings or sell shares, affecting the share price

  • Employees can strike, resign, or lower their productivity

  • Customers can stop buying products and damage the brand

  • Pressure groups can launch campaigns that create bad publicity

  • Governments can fine or close businesses that break the law

2. Accountability maintains trust and reputation

• Being open and honest helps build trust

• A good reputation attracts investors, skilled workers, and loyal customers

3. Supports long-term success

• Listening to stakeholders helps businesses avoid conflict and make better decisions

• It encourages ethical behaviour and reduces the risk of breaking laws or damaging the environment

Accountability to different stakeholder groups

Conflicting stakeholder aims and objectives

• Stakeholder groups can have conflicting objectives, which can lead to tensions and disagreements

• Conflicts can also arise when stakeholders have different levels of power and influence

  • E.g. Pressure groups with strong public support may be able to influence business activity more than individual shareholders

• Businesses may need to balance the competing demands of different stakeholder groups

  • E.g. A company may need to invest in costly environmental technology to meet the demands of the local community, but this may reduce profitability and upset shareholders

Examples of stakeholder conflicts

How stakeholders may be affected by changes in objectives

• Business objectives can change over time depending on the business’s situation, such as during a recession, after a merger, or when facing public pressure

• Any change to an objective will impact stakeholders in different ways

1. Employees

   • If the business changes its objective to focus on cost-cutting, employees may face job losses or lower wages

   • If the new aim is growth, employees may see more job opportunities, promotions, or training

2. Owners

   • A shift towards profit maximisation may result in higher dividends and increased share prices

   • If the business aims to become more sustainable, profits might drop in the short term, which some shareholders may not like

3. Customers

   • If the focus is on lower costs, product quality or customer service might suffer

   • If the aim shifts to customer satisfaction or ethical business, customers may benefit from better service and feel more loyal to the brand

4. Suppliers

   • If the business wants to reduce spending, it may demand lower prices or reduce orders, which negatively affects suppliers

   • If the business focuses on ethical sourcing, suppliers who meet fair trade or quality standards may benefit

5. Local community

   • If a business changes its objective to focus on environmental impact, the local area may benefit from cleaner operations and more community support

   • If the goal becomes global expansion, the business might relocate, reducing local investment or jobs

Business decisions affect stakeholders differently

• Stakeholders do not all react in the same way to business decisions

  • Internal stakeholders are directly involved, so changes often affect job roles, business income, or strategy

  • External stakeholders may feel the impact in the form of prices, supply contracts, local jobs, or reputation

Changing business objectives and stakeholder reactions