Internal Stakeholders (SQA National 5 Business Management): Revision Note

Introduction to stakeholders

• Stakeholders are individuals or groups that affect, or are affected by, the actions of a business

  • Internal stakeholders are individuals or groups within a business that often have a strong influence on business objectives and decisions

    • The main internal stakeholders are owners, including shareholders, and employees

  • External stakeholders are individuals or groups outside a business who are affected by its activities or can influence its decisions, but are not directly part of the organisation

    • The main external stakeholders are customers, suppliers, the local community, the government, banks and other lenders, and pressure groups

Internal and external business stakeholders

Owners and shareholders

• Owners are the individuals or groups who legally control a business

  • They take on the financial risks involved and hope to benefit from its success

• Shareholders are people who own shares in a limited company

  • They may hold just a few shares or a significant proportion, but either way they are entitled to a share of the profits

• Some owners choose to actively run the business day-to-day, while others prefer to appoint managers to make decisions on their behalf

  • This can sometimes cause tension if managers’ decisions do not match the owners’ expectations

What do owners and shareholders want?

• Profit

  • Owners expect the business to generate enough profit to ensure survival and fund growth

• Dividends

  • Shareholders in companies hope to receive regular dividend payments from their investment

  • They also want their investment to increase in value

• Business growth and stability

  • Owners and shareholders want the organisation to be financially secure and competitive

• Influence

  • Shareholders can vote on important matters, such as appointing or removing directors at the Annual General Meeting (AGM)

How do owners and shareholders influence business decisions?

• Investment

  • Owners and shareholders can put more money into the business to fund growth or withdraw it if they lose confidence

• Strategic control

  • At company meetings, they can vote to change the direction of the business or replace leadership

• Expectations

  • Their demands for high profits or strong ethical standards influence management decisions

Employees

• Employees — from managers to frontline staff — are vital to the success of any organisation

• Their performance, decisions, and motivation directly affect the reputation, efficiency, and profitability of a business

What do employees want?

• Job security

  • Knowing their employment is stable and they will continue to have paid employment in the long term

• Fair pay

  • Wages that reflect their contribution and allow them to maintain living standards when living costs rise

• Good working conditions

  • Safe, comfortable workplaces and supportive managers and colleagues

How do employees influence business?

Managers

• Managers are trusted by owners to oversee the day-to-day running of the business

• They are responsible for leading teams, setting targets, and ensuring that staff deliver high-quality work and customer service

• They also report results back to the owners or shareholders

What do managers want?

• Career progression

  • Opportunities for promotion and personal development

• Rewards

  • Financial incentives such as bonuses linked to performance

• Security

  • Confidence that their role is safe if the business performs well

How do managers influence business?