As different stakeholder groups have varying interests in a business, it is likely that conflict will arise.
Conflict is a situation where two people or groups of people disagree due to differences in their opinions, ideas or requirements thus creating frictions in the organization.
It is possible for business activities and business decisions to have both positive and negative effects on stakeholders. In fact, it is very rare for all stakeholders to be either positively or negatively affected by those activities and decisions.
Let’s look at some typical business actions and decisions to allow an analysis of conflicting situations.
Conflicts arise from different stakeholder objectives
Conflicts will arise between different stakeholder groups when a business action or decision would benefit some stakeholders, but not others.
According to the traditional ‘shareholder concept, any attempts to meet obligations to other stakeholders than shareholders will conflict with the business’s responsibilities to its shareholders. It is because any extra spending on employee welfare or salary increases for managers reduces profits which all belong to shareholders. So, it is the owners against everyone else.
Another source of potential conflict is that some stakeholders have more than one role, or many interests in a business organization. Managers can be both managers and shareholders, while workers can both work for the business and be a supplier as well. Many employees will also be members of the local community or a pressure group. In the US, many board members of large S&P 500 companies are also members of the government. Therefore, based on the different objectives of these groups, some degree of conflict is likely to happen over time.
Examples of stakeholder conflicts
1. Owners vs. Employees. Shareholders want more profit while employees want higher salaries, better benefits and more comfortable working conditions. Cutting costs to increase profits for the owners will make employees angry. So, conflict!
2. Suppliers vs. Managers. Suppliers want the business to pay the full price in one transaction, but managers of the business would like to receive discounted prices for regular purchases in large quantities with delayed payment. So, conflict!
3. Managers vs. Owners. Managers and directors want better remuneration (pay and benefits) while shareholders think that top management is already ‘overpaid’. Managers and directors also want to receive a part of profit which belongs to shareholders (in the form of dividends). Therefore, senior executives would argue that because they have already managed to increase gains for shareholders, their compensation also needs to be adequate for the higher risks involved in decision-making. So, conflict!
All in all, it is very likely that one stakeholder group will benefit while the other would lose out. Any major business decision is likely to have this effect as it is usually very difficult to create win-win situations in daily life.
