Understanding Stakeholders: Internal, External, and Conflicts
Understanding Stakeholders: Roles, Motivations, and Conflicts
Stakeholders are individuals or groups with an interest in an organization. They are motivated to contribute when the benefits (incentives) they receive are greater than their efforts (contributions). Stakeholders can be internal or external.
Internal Stakeholders
Shareholders: They are the owners of the organization and hold the most power. Their contribution is financial investment, and their incentive is the return or profit generated from that investment.
Executives/Managers: They coordinate resources and are responsible for achieving organizational goals. They contribute their skills and leadership, while their incentives include salary, job satisfaction, and career growth.
Employees (Staff): Non-managerial employees who perform assigned tasks and uphold responsibilities. Their contributions involve fulfilling their duties, and their incentives are salaries, bonuses, and job stability.
External Stakeholders
Customers: They are the largest group of external stakeholders. They provide revenue through their purchases and expect good value for money in return.
Suppliers: Provide reliable inputs and components that reduce uncertainty in operations. Their incentive is the income generated from sales to the organization.
Government and Authorities: Contribute by setting legal and administrative standards to ensure fair business practices. Their incentive is to promote fair competition and collect taxes.
Unions: Represent employees in collective bargaining. Their incentive is to secure fair wages, benefits, and working conditions for workers.
Community: Offers the social and economic infrastructure (e.g., roads, education, services). In return, it benefits from taxes and social contributions made by the organization.
Public Opinion: Supports the organization’s reputation and brand image. Its incentive is the moral satisfaction of supporting or associating with a reputable and ethical organization.
Conflicts Between Stakeholders
Different objectives: Executives may focus on operational goals, while shareholders prioritize financial returns.
Short-term vs. long-term focus: Shareholders often favor long-term growth, whereas executives may aim for short-term performance results.
Risk attitudes: Executives might avoid risky investments (e.g., R&D) that could actually increase shareholder value.
Resource allocation: There can be tensions over how to distribute resources fairly among shareholders, executives, and staff.
Organizational Structure and Stakeholder Influence
Shareholders represent the ownership of the organization and exercise control over the executives through the Board of Directors, of which they are part. This board oversees the activity of the executives and rewards top management. The Chairman of the Board is the main representative of the shareholders.
Within the Board of Directors, there are:
- The Executive Committee
- The Compensation Committee
Below the board, we find the CEO, who holds the power to define the organization’s strategy and use resources to create value: they set objectives, manage the allocation of scarce resources, have the ability to attract resources from the environment, etc.
The COO supervises the operations of the main business divisions and units.
The Executive Vice Presidents are responsible for overseeing and managing key line and staff roles.