STAKE HO L D E R T RA D E - OF F

HAN BA , SID DHART HA DA S

AJ DAS, K ONSAM KO ROW
BY- DEEPR
OUTLINE OF THE TOPIC:
INTRODUCTION TO STAKEHOLDERS
TAXONOMY OF STAKEHOLDERS
STAKEHOLDER RELATIONSHIP
IMPACTS AND DILEMMAS OF BUSINESS
STAKEHOLDER TRADE-OFF
SUMMARY
 WHO IS A STAKEHOLDER?
• A PARTY THAT HAS AN INTEREST IN A COMPANY AND GETS AFFECTED BY ITS DECISIONS.
• RISE OF STAKEHOLDER
• ENTITIES BECOMES STAKEHOLDERS
 TYPES OF STAKEHOLDERS

• INTERNAL STAKEHOLDERS
• EXTERNAL STAKEHOLDERS
INTERNAL STAKEHOLDERS

• THE INDIVIDUAL AND PARTIES THAT ARE THE PART OF THE ORGANIZATION ARE KNOWN AS INTERNAL
STAKEHOLDERS. FOR EXAMPLE- OWNERS, EMPLOYEES, MANAGERS, BOD ETC.
EXTERNAL STAKEHOLDERS

• THE PARTIES OR GROUPS THAT ARE NOT A PART OF THE ORGANIZATION, BUT GETS AFFECTED BY ITS
ACTIVITIES ARE KNOWN AS EXTERNAL STAKEHOLDERS. FOR EXAMPLE- SUPPLIERS, CUSTOMERS,
CREDITORS ETC.
EMPLOYEES- THE INTERNAL STAKEHOLDERS
BANKS- THE EXTERNAL STAKEHOLDERS
DON’T GET CONFUSED!
STAKEHOLDER STOCKHOLDER

A STOCKHOLDER OR SHAREHOLDER IS THE HOLDER OR OWNER OF STOCK IN A CORPORATION.

A STAKEHOLDER IS ANYONE THAT HAS AN INTEREST OR IS AFFECTED BY A CORPORATION.
SOME ORGANIZATIONS DO NOT HAVE STOCKHOLDERS BUT ALL HAVE STAKEHOLDERS. FOR EXAMPLE-
ASSAM UNIVERSITY.
TAXONOMY OF STAKEHOLDERS

• WHAT DOES TAXONOMY MEAN?

THE WORD COMES STRAIGHTFORWARDLY FROM GREEK WORDS FOR ‘ARRANGEMENT’- TAXIS AND
‘METHOD’- NOMIA. SO ANY SPECIAL METHOD FOR ORGANIZING THINGS CAN BE CALLED TAXONOMY.
• TAXONOMY OF STAKEHOLDERS IS SIMILAR TO THE CLASSIFICATION OF INTERNAL AND EXTERNAL
STAKEHOLDERS. THE ONLY DIFFERENCE IS THAT HERE WE CATEGORISE THEM UNDER ‘PRIMARY-SOCIAL’
AND ‘SECONDARY-NON-SOCIAL’ GROUPS.
TAXONOMY OF STAKEHOLDERS
STAKEHOLDER RELATIONSHIP

• STAKEHOLDERS ARE INDIVIDUALS, GROUPS AND ENTITIES AFFECTED BY THE OPERATION OF A BUSINESS.
FAIR TREATMENT AND STRONG RELATIONSHIPS WITH KEY STAKEHOLDERS IS THE KEY TO LONG-TERM
PROFIT AND BUSINESS SUCCESS.
• FOR BETTER UNDERSTANDING, HERE WE CLASSIFY STAKEHOLDERS INTO FOUR GROUPS:
a) STOCKHOLDERS
b) EMPLOYEES
c) SUPPLIERS
d) SOCIETY AND COMMUNITY
STOCKHOLDERS

• HAVING INVESTED IN THE COMPANY, SHAREHOLDERS AND OTHER INVESTORS HAVE A FINANCIAL STAKE
OVER A BUSINESS.

• THEY MAKE INVESTMENT IN THE COMPANY IN THE FORM OF STOCKS, BONDS, ETC. HENCEFORTH, THEY
WOULD DEMAND FOR A RETURN ON INVESTMENT (ROI).

• THUS, THE ORGANIZATION NEEDS TO MAKE FINANCIAL RELATIONSHIP WITH THE STOCKHOLDERS.
 EMPLOYEES
• THE MANAGEMENT OF A COMPANY NEEDS TO MAINTAIN A GOOD RELATION WITH THOSE IT WORKS WITH.
• EMPLOYEES ARE HIRED FOR THEIR SKILLS AND EXPERTISE AND THUS EXPECT RETURN IN THE FORM OF
WAGES, BENEFITS, SECURITY ETC.

• THEY NOT ONLY NEED MONETARY RETURNS BUT ALSO NON-MONETARY RETURNS TOO.
• SUCH A RELATIONSHIP NEEDS TO BE NURTURED TO ENSURE PROFITS AND HEALTHY GROWTH OF THE
ORGANIZATION.
SUPPLIERS

• BUSINESS MUST MAINTAIN A HEALTHY RELATION WITH THOSE FROM WHOM HE GETS THE SUPPLY OF
GOODS.

• IN RETURN, THE SUPPLIERS EXPECT A TIMELY PAYMENT FOR THE GOODS SUPPLIED TO THE BUSINESS.
• THUS, THE BUSINESS HERE NEEDS TO MAINTAIN A MUTUAL WIN-WIN RELATIONSHIP.
SOCIETY AND COMMUNITY
• THE SOCIETY AND THE COMMUNITY HAVE A TREMENDOUS INFLUENCE OVER A BUSINESS AND HENCE THEY
NEED TO DEAL WITH CARE.

• THESE INCLUDE VARIOUS RELIGIOUS GROUPS, NGOS, CHARITIES, PRESSURE GROUPS ETC.
• BUSINESS NEEDS TO PERFORM CSR ACTIVITIES THROUGH CHARITY AND PARTICIPATE IN LOCAL
COMMUNITY ACTIVITIES AND EVENTS.

• SINCE BUSINESS GEARS ITS MONEY FROM THE SOCIETY IT MUST THINK FOR THE SOCIETY’S WELFARE TOO.
A GOOD RELATION BETWEEN SOCIETY AND THE BUSINESS LEADS TO THE CREATION OF A BETTER ECONOMY.
IMPACTS AND DILEMMAS OF BUSINESS

• BUSINESS HAS IMPACT OVER THREE SECTION. THESE ARE:

a. FINANCIAL IMPACT
b. SOCIAL IMPACT
c. OPERATION IMPACT
FINANCIAL IMPACT

• COMPANIES ARE STILL IN BUSINESS TO MAKE MONEY.

• THE ROLE OF THE COMPANY IS TO MAKE WISE DECISIONS THAT IMPROVE REVENUE, MINIMIZE COSTS
AND PRODUCE A POSITIVE BOTTOM LINE.

• SHOWING A FINANCIAL RETURN ON INVESTMENT FROM SOCIALLY AND ENVIRONMENTALLY RESPONSIBLE

BEHAVIOURS IS DIFFICULT.
SOCIAL IMPACT

• THE INTERNET AND MOBILE TECHNOLOGY HAVE GIVEN GREATER POWER TO SOCIAL AND CONSUMER
WATCH GROUPS AND THE PUBLIC AT-LARGE.

• THE BUSINESS NEEDS TO MAINTAIN TRANSPARENCY WITH THE SOCIETY.

• NON-CUSTOMER FRIENDLY ACTIONS SIMPLY DON'T MAKE LONG-TERM SENSE IN THE EARLY 21ST
CENTURY.
OPERATION IMPACT
• EMPLOYEES HAVE BECOME A MUCH MORE INVOLVED STAKEHOLDER GROUP.
• EMPLOYEES EXPECT TO BE VALUED AS A KEY ASSET AND EXPECT TO BE ABLE TO WORK IN A NON-
DISCRIMINATORY WORK ENVIRONMENT.

• SUPPLIERS EXPECT TO BE PAID ON TIME AND EXPECT THAT YOU WILL KEEP THEM IN THE LOOP ON
IMPORTANT BUSINESS ACTIVITY THAT RELATES TO THEIR RELATIONSHIP WITH YOUR COMPANY.

• FOR EXAMPLE, USING A SUPPLIES OR RESALE PRODUCTS IN A WAY THAT IS BAD FOR THE ENVIRONMENT
OR SOCIALLY IRRESPONSIBLE IMPACTS THE SUPPLIERS OR THE PARTNERS AS WELL.
STAKEHOLDER TRADE-OFF
• ALTHOUGH BUSINESS ORGANIZATIONS EXPECT TO MAINTAIN A MUTUAL WIN-WIN SITUATION AMONG
ITS STAKEHOLDERS BUT IT IS NOT PRACTICALLY ACHIEVABLE.

• A TRADE-OFF IS ONE WHERE ONE STAKEHOLDER GAINS WHILE THE OTHER LOSES.
• SUCH AS, A STOCKHOLDERS GAIN CAN SOMETIMES BE A COMMUNITY’S LOSS.
• THE FACT THAT MANAGERS HAVE TO BALANCE DIVERSE AND CONFLICTING STAKEHOLDERS’ INTERESTS
HAS ALSO BEEN RECOGNIZED BY STAKEHOLDER THEORISTS.

• WHILE MANAGERS ARE UNLIKELY TO COMMUNICATE TO STAKEHOLDERS THAT THEY ARE TRADING-OFF
THE INTERESTS OF ONE STAKEHOLDER GROUP TO ADVANCE THE INTERESTS OF ANOTHER GROUP, IT IS
OBSERVED THAT SOME STAKEHOLDERS ARE TREATED MORE FAVOURABLY THAN OTHERS.

• A RESEARCH HAS SHOWN THAT EMPLOYEES CONSIDER THE FIRM’S TREATMENT OF OTHER
STAKEHOLDERS AS WELL AS EMPLOYEES WHILE DECIDING WHETHER TO APPLY FOR A JOB.
• AS AN EXAMPLE CONSUMERS WILL NOT SACRIFICE MINIMUM PRODUCT QUALITY STANDARDS IN FAVOUR
OF CSR INVESTMENTS TARGETED AT EMPLOYEES OR THE ENVIRONMENT AS BECAUSE STAKEHOLDERS
CARE ABOUT FAIRNESS.

• TRUST CAN THUS BE SEEN AS A VALUABLE RESOURCE THAT HELPS TO COUNTER-ACT THE NEGATIVE
IMPACT OF TRADE-OFFS.
• FOR EXAMPLE- THE BUSINESS MAKES AN INVESTMENT IN A PROJECT OF OIL MINING WHERE THE
BUSINESS WOULD BE GETTING HIGH RETURNS WHICH WILL DIRECTLY BENEFIT ITS ONE GROUP OF
STAKEHOLDERS. ON THE OTHER HAND THE PEOPLE LIVING IN THAT AREA OF MINE CONSTRUCTION WILL
BE AFFECTED BY HARMFUL ENVIRONMENTAL EFFLUENTS. HENCE, THERE LIES A TRADE-OFF BETWEEN ONE
GROUP OF STAKEHOLDERS AND THE OTHER GROUP I.E. THE COMMUNITY.
 SUMMARY
• THE STAKEHOLDER THEORY SUGGESTS THAT BUSINESS CANNOT EXPECT TO GAIN PROFITS IF IT PUTS ONE
STAKEHOLDER OVER THE OTHER. OF COURSE THERE WILL BE TRADE-OFF OR CONFLICT AMONG THE
STAKEHOLDERS. IN THIS SITUATION THE COMPANY SHOULD REFLECT A FAIR RELATIONSHIP WITH ALL OTHER
STAKEHOLDERS AS WELL. THE BUSINESS COMMUNITY HAS TO WORK TO ENSURE THE GROWTH OF BOTH THE
PHYSICAL AND EMOTIONAL NEEDS OF HUMAN BEINGS, BECAUSE MONEY AND MATERIAL GOODS CANNOT
GUARANTEE NECESSARY HUMAN FEELINGS LIKE LOVE, FRIENDSHIP, SHARING, LOYALTY, ETC. IN A SOCIETY.
THIS GIVES BIRTH TO THE CONCEPT OF HOLISTIC GROWTH.