1.4 Stakeholder Engagement

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Stakeholders are anybody that has an interest in a business. Stakeholders are impacted by a business’s operations, but they can also have an impact on the business.

Internal & External Stakeholders


Internal stakeholders are those within a business.


External stakeholders are those in the businesses external environment.

  • Customers
  • Shareholders
  • Local community
  • Government
  • Finance providers

Stakeholder Interests

Each stakeholder will have their own interest in a business’s operations.

  • Employees are interested in better pay, good working conditions, employee benefits and job security. Managers are interested in the future of the business by achieving the aims and objectives of the business. In turn, this will lead to promotion opportunities and job security. Employees are interested in long-term employment with the business with regular income and getting paid in a timely manner.
  • Owners are the people who own a sole trader or partnership business. They are internal as legally, they are the business, and this is why owners have unlimited liability. They are interested in the survival of the business and also that the business is making a profit, in turn, they can then take money from the business as drawings.
  • Customers are interested in getting value for money, this does not necessarily mean the cheapest if they’re buying a luxury or high-quality Product
  • Shareholders are the owners of Private or Public Limited Companies, they are external as legally they are separate from the business (Limited liability). They are interested in the business making a profit so that they can get paid in the form of dividends
  • Local community may form the employees or workers of the company so some they may also be concerned with the amount of environmental traffic or pollution that the business creates for example a large production company may have lots of traffic coming in and out and lots of deliveries this may cause pollution for the local community. A 24-hour business may create a lot of noise at nighttime which could disturb the community
  • The Government are interested in businesses performing well to benefit the economy. They may also be concerned about the business providing employment which will reduce the unemployment rate (amount of people not working). The government also be interested in the business paying tax
  • Finance providers are the people that lend the business money. They will want to be repaid promptly finance providers will also want to make sure that they are repaid in full and not have to chase the debt

Stakeholders and shareholders are not the same things! Shareholders own a share (a percentage of ownership) of the company, whereas stakeholders are anyone that is interested in the operations of the business.

Internal or External Quiz

Drag the stakeholders so they are either internal or external.

Stakeholder Interest Quiz

1.4.3 Stakeholder Engagement

Stakeholder engagement is the idea of interacting with stakeholders in order to achieve the desired outcome.

The benefits of stakeholder engagement can be seen below:

EmployeesStaff motivation/retention – Happy staff are likely to be highly motivated as they get satisfaction from their job other than money. Happy staff are less likely to leave the company, improving staff turnover and retention.

New ideas – If a business engages its stakeholders it will result in happy customers and satisfied employees, who are more willing to share suggestions and be innovative and creative. Customers will not make suggestions to a company they are unhappy with.
CustomersImproved reputation – If a business engages stakeholders to ensure that customers, employees and the local community are satisfied with the company they are likely to share positive marketing messages about the company. This could be via word of mouth or online, resulting in an improved reputation.
SuppliersBetter rates – happy suppliers are more likely to offer better discounts when buying in bulk. Suppliers are after

More time to pay – suppliers are more likely to offer trade credit (buy now, pay later) when they are happy with their customers and have a long and established relationship.
Local communityPotential customer base – local communities that are engaged by the business are more likely to make a purchase. however, if the business operates with no regard for the local community, this could deter them from becoming future customers. For example, a business that has trucks coming through the local community all night long is likely to find it harder to turn them into customers.

Improved reputation.
GovernmentCompliance – Businesses can use engagement to show compliance with laws and legislation. This means businesses can avoid fees or penalties for not following the law.
Government grants and loans – businesses that engage the government and meet government priorities are likely to be in receipt of loans or grants. For example, the government may offer grants for businesses to bring employment to an area.
Influence over laws and legislation
Finance ProvidersBetter credit terms – If a business engages with finance providers, they are more likely to get more favourable credit terms. This means lower interest rates, longer repayment times and higher loan amounts.

1.4.4 Stakeholder Conflict

Each stakeholder has their own aims and objectives with regard to their interest in the business.

As well as the business having an impact on the stakeholders, stakeholders can have an influence over the business and its decisions.

StakeholderExamples of Conflict
EmployeesEmployees want more pay whereas owners and shareholders want more profit.
OwnersOwners want to spend less and have longer to pay, suppliers want to charge more and get paid quicker.
CustomersCustomers want to pay less for high-quality products and businesses want to receive maximum revenue and cut costs.
ShareholdersShareholders want maximum dividend payments for their investment, managers want to make maximum profits and employees want more pay, the government wants more tax.
Local CommunityThe local community want less pollution, traffic and noise whereas the business will want to increase operations.
GovernmentThe government wants more tax and businesses to follow the law, businesses want to pay less tax and have corporate freedom.
Finance ProvidersFinance providers want to charge maximum interest rates and owners and managers will want to borrow cheaply.

While it is impossible to please every stakeholder completely, successful businesses will ensure that they engage with stakeholders to negotiate and come to an agreement. As the saying goes, “A good negotiation is one where both parties walk away equally unhappy“. It is important to remember that if stakeholders are not happy, they can have an influence over the business too.

Stakeholder’s Influence

  • Owners are in charge of the business they have the final say over the direction and goals the business sets out to achieve
  • Customers can stop purchasing from a business, this is called boycotting
  • Suppliers can increase prices or can stop supplying a business
  • Shareholders have invested in the company. If shareholders are unsatisfied with the business’s performance they may sell their shares
  • Local community can share information about the business by word-of-mouth all on social media which has a direct impact on the reputation of the business local community may also organise protests which can have an impact on the business
  • Government sets legislation and rules that the business must follow, the government also sets taxation rates this has a direct impact on the profit of the business
  • Finance providers lend the business money if they stop lending the business money the business may experience Cash flow problems if they charge more interest which will have an impact on the business’s profit


Create a poster showing the different stakeholders of a business and their expectations of the organisation.


1.3.3 Restructuring

4.1.1 Outsourcing