Stakeholders are individuals or groups with a direct interest in a business, as the business’s actions affect them. This interest can be financial (ie. shareholders, lenders, suppliers, employees) or indirect interests such as the local community where the business operates.

Stakeholders are often categorized into market and non-market, primary and secondary, or internal and external groups. The most important distinction in IB exams is usually internal vs external stakeholders. While internal stakeholders work within the business (ie. employees, managers), external stakeholders are outside the organization but they are still affected by its actions (ie. customers, suppliers, government).

Shareholders are individuals who own part of the business, for example, a partner in a partnership, those who purchase shares of listed companies, or those are owners of a privately owned business.

Market stakeholders is just a differentiation between entities that the business transact with/ have a commercial relationship with, ie. customers, suppliers, and lenders. Non-market stakeholders include the media, the government, and the community, with whom money doesn’t change hands.

Internal Stakeholder v External Stakeholder Interests

• Internal stakeholders: Shareholders seek returns, the CEO aims for profit and strategy alignment, senior managers focus on strategic goals, middle managers handle tactical tasks, and employees prioritize fair wages and working conditions.
  
• External stakeholders: The government focuses on business regulation, suppliers aim for stable relationships, customers demand quality, the local community values the business’s impact, and financiers (banks/ investors) look for returns on investments.

Stakeholder Conflict in Action

Different stakeholder groups may have conflicting interests.

Shareholder vs Stakeholder

For example, a pay rise might please employees but reduce profits, upsetting shareholders. Senior managers, while supportive of employees, must also ensure profit targets are met. Local communities might favor higher wages, but only if they don’t harm the business’s sustainability.

Amazon: In recent years, Amazon faced employee protests over working conditions and wages, particularly during the COVID-19 pandemic. Warehouse workers demanded higher pay, better health and safety protocols. In contrast, Amazon shareholders pushed for cost-efficiency and higher profits, often resulting in a conflict between the need to satisfy employees and the desire to maintain shareholder returns.

Management vs. Employees:

If management decides to downsize or cut costs to improve profitability, employees might resist these changes due to job insecurity or reduced benefits. One example of changed management causing conflict is the pared-back Work-From-Home (WFH) benefit that many companies introduced post-pandemic.

Meta, along with other tech giants, initially embraced a more flexible approach to WFH during the pandemic, but in 2023, as part of its efforts to cut costs and improve profitability, Meta announced that it would scale back certain employee benefits, including the full flexibility of remote work for some employees. This led to resistance from employees who had grown accustomed to the flexibility of working remotely. The decision also reflected broader cost-cutting measures, including significant layoffs (over 10,000 employees) as part of the company’s “year of efficiency.”

Another example is Twitter (now known as X) under Elon Musk, which severely reduced employee benefits and imposed significant layoffs. The cuts and changes to work culture led to backlash from employees, many of whom cited insecurity and diminished morale.

Read more: ‘Zero empathy’, ‘total upheaval’: Inside Twitter’s layoffs in Singapore

Local Community vs. Shareholders:

Shareholders may push for cost-cutting measures, such as outsourcing or reducing labor costs, which could result in job losses. This, in turn, can provoke backlash from the local community, who may prioritize employment opportunities.

Nike faced criticism for its outsourcing practices, particularly in the 1990s and early 2000s when it moved much of its manufacturing overseas to countries like China and Vietnam, where labor was cheaper. While these decisions were profitable for shareholders and helped maintain competitive pricing, they led to job losses in Nike’s home country, the US. As damning reports of Nike’s sweatshops emerged, activists started piling on pressure on the company to reconsider its labor practices and improve working conditions in overseas factories.

Managing these diverse interests is key for success, especially in large businesses. For example, a factory’s workforce reduction could impact local employment, real estate, and businesses, demonstrating how stakeholders are interconnected.

Stakeholder Analysis

Large companies often conduct stakeholder analysis to prioritize interests. One method is the power–interest model, where stakeholders are grouped as follows:

• Group A: Low interest and power (e.g., distant consumers, low-priority external stakeholders).
• Group B: Moderate interest and power (e.g., employees, suppliers).
• Group C: High interest and moderate power (e.g., media, local community).
• Group D: High interest and power (e.g., owners, managers, major investors).

Understanding these groups helps businesses make informed decisions, ensuring the needs of key stakeholders (Groups C and D) are prioritized to avoid negative consequences.

Read here for more on Unit 1.1 Introduction to IB Business Management
Read here for more on Unit 1.2 Business Entities
Read here for more on Unit 1.3 Business Objectives