Categories: BusinessNews

Stakeholders: what are they and what is their impact on companies?

Published by
Lethabo Ntsoane

A stakeholder can be an individual or an organization with an interest in a company’s operations. These individuals or organizations are critical to a company’s success, and JSE reporting requirements cater to them.

They have the ability to affect change in a company or to influence business activities. Let’s take a closer look at what a stakeholder is, who the various stakeholders are, and more.

What is a Stakeholder?

A Stakeholder is a company, group, or individual with an interest in a company and can either influence or be influenced by it. Stakeholders can be both internal and external, depending on the level of influence they have in the company.

Types of Stakeholders

Internal stakeholders and external stakeholders are the two types of stakeholders. In the sections that follow, we will go over these two types of stakeholders.

Internal Stakeholders

Internal stakeholders are individuals or groups who work within an organization or on a project within an organization. These stakeholders are inextricably linked to the business and have an internal influence on it.

Employees, directors, and managers make up a company’s internal stakeholders. Here’s how these individuals influence or are influenced by the company:

Employees

Employees of a company work in the production of goods or the provision of services. Their performance has a direct impact on the profitability of the company. They are impacted by the company’s existence because they rely on it for salaries to sustain their lives and want to keep their jobs.

Managers

Managers are in charge of departments within a company and focus on the projects that the company is working on. They are important in a business because they can make or break employee morale.

They, like employees, want job security and rely on the existence of a business to make a living. Managers report to directors but are superior to employees.

The board of directors

The board of directors is in charge of steering the company toward profitability. Their role is to protect the interests of shareholders, establish policies, and oversee business operations.

Profits can be maximized with a good board of directors, and shareholders can get their fair share of profits for their investment. Directors rely on the success of the company to earn money and, in some cases, stock from it.

Shareholders

Shareholders are internal stakeholders who are responsible for the company’s survival. They are in charge of establishing the company’s vision, which has an impact on many stakeholders, including the community in which the business operates.

External Stakeholders

Individuals, businesses, or groups that are not directly affected by a company’s activities or decisions are referred to as external stakeholders. These stakeholders have a vested interest in the company.

Examples of external stakeholders are provided below

Customers

Customers purchase services, goods, or a combination of the two from a business. Customers have an indirect interest in the company. Customers may want to know if the company from which they purchase goods uses best practices in the production of those goods.

Customers will also want to know if they are supporting a company that gives back to society while also reducing its environmental impact through the development of environmental safeguards.

Suppliers

Suppliers will want to see increased demand for the products they supply in the businesses to which they supply products. This is because suppliers rely on the business to generate revenue; thus, if sales increase, so will the supplier’s revenue.

Suppliers are also concerned about the liquidity of the company to which they supply goods or services. Insolvency means that the supplier will no longer be able to supply goods or services to the company.

Society

Society is concerned with whether or not the business contributes positively to it. The general public will want to see things like job creation, economic development, safety promotion, and adequate health care.

As a result, businesses have established social responsibility programs to give back to the communities in which they operate. Since the beginning of the twenty-first century, efforts to clean up waste matter generated by firms have been a popular project for businesses.

Government

The government is a major stakeholder in a business, and its influence has a significant impact on it. The government collects taxes such as VAT, income tax, and Pay As You Earn tax, and it has a particular interest in businesses because it must collect taxes and regulate industries.

Trade Unions

Trade unions exist to ensure that employees receive good and improved wages, they work in a safe environment, and that they have access to benefits. Trade unions and businesses work together to protect the interests of employees.

Why are Stakeholders important?

Now that you understand the various stakeholders and their importance to a business, let us look at why they are important.

Different stakeholders are important for a variety of reasons and can sometimes contribute to the company’s long-term survival. Internal stakeholders are important to businesses because businesses rely on them to achieve their goals. Internal stakeholders enable operations, capital, and resources, and a business cannot function without them.

External Stakeholders are important to the business because their actions, such as raising taxes, calling for employee strikes, enacting new regulations, and so on, have an indirect impact on the business. Managing relationships with internal and external stakeholders is always preferable.

Conclusion

Stakeholders are important, and businesses rely on them to stay in business. When making decisions at the board level, each and every stakeholder must be considered so that no group is left out, as this could lead to problems.

The JSE requires public companies to establish committees as part of corporate governance. Because companies listed on the JSE have a high level of public interest, the reporting structure also caters to external stakeholders.

Lethabo Ntsoane

Lethabo Ntsoane holds a Bachelors Degree in Accounting from the University of South Africa. He is a Financial Product commentator at Rateweb. He is an expect financial product analyst with years of experience in reviewing products and offering commentary. Lethabo majors in financial news, reviews and financial tips. He can be contacted at lethabo@rateweb.co.za

Published by
Lethabo Ntsoane