How Do Stakeholders Influence Business Activities?

A wide variety of people influence the strategies and decision-making processes of a business, including some who never walk through the door or make a purchase. Anyone who has a vested interested in the ethical and successful performance of a business can be considered a stakeholder, and depending on their needs, the company must take into account how its activities affect them.

To understand who your company’s stakeholders are, divide people affected by your company into three groups: internal, external and connected stakeholders. Internal stakeholders are those who own or work at the company, including partners, board members and employees. External stakeholders are those affected by the performance of a business, including the local city government, community residents, nonprofits a business sponsors or donates to and the trade media. Connected stakeholders include shareholders, vendors, suppliers, retailers, contractors, customers, wholesalers, sales reps and distributors.

The performance of a business directly affects the pocketbooks of internal stakeholders, and management must consider the financial effects of its activities on this group. Poor decisions hurt profitability, which reduces an owner’s interest, employees’ opportunities for raises, bonuses and increased resources, board members’ liability and partners’ workloads. An owner must take into account the reaction of his staff before he increases working hours, passes the work of a terminated employee onto remaining staff, reduces benefits, ends telecommuting or takes other actions that change his staff’s situation. Board members give management broad goals and strategies and require the company’s leadership to run key decisions by them, including those concerning financial goals, brand management, new product lines or acquisitions.

Members of the business and local community want businesses that benefit them to succeed. A business will be less likely to ship jobs out of town if it means less cooperation from local and state governments when it comes to zoning requests or tax breaks. Company management will continue to support local charities if those nonprofits promote the business and refer business. Local and trade media are more likely to give a business favorable media coverage if that business buys advertising, provides information and sources for articles and supports local charities.

Suppliers might give a business better prices if the business agrees to exclusivity with that supplier, quick turnaround on invoices or is flexible with delivery times. Customers might leave a business associated with a celebrity who behaves badly, so companies who use celebrity endorsements often have a morals clause in the contract. Business-to-business customers let companies know they will take their orders elsewhere if the business doesn’t maintain product quality and on-time delivery. The threat of stockholders ousting board members or dumping stocks, driving down their value, directly affects management decisions, such as whether to use excess cash to take a chance on a new product or business purchase, pay a dividend or reduce debt.