Stakeholder conflict is ever-present. It happens in all business organizations to some extent all the time.
Given the potential mutual benefits of achieving the interests of various stakeholders, conflict resolution is an important aspect of business strategy.
Shutting down the business all at once will cause big conflicts as it will not give workers ample time to find new jobs. Relocating a manufacturing plant generating pollution will cause opposition from a local community who wants to live in a clear environment. Building a new airport with 24-hour flights may benefit passengers, but will not be easily accepted by local residents who will suffer from constant noise.
One of the main reasons for stakeholder conflict to happen is that different stakeholders must coexist with each other and that each stakeholder group has its own objectives.
Employees who want to get higher paychecks will disagree with management decisions on cost-cutting plans. Customers will be dissatisfied when the company lowers the quality of its products or increases prices. Suppliers who fail to deliver the right goods on time at satisfactory quality will get in troubles with the management of the company. Shareholders will be unhappy with the performance, profitability and the amount of dividend which they are about to receive.
It is very unlikely that a business will ever be able to fulfil the aims of all its stakeholder groups at the same time. And even though it happens, it is undesirable to maximize the needs of just one stakeholder group at the expense of another as it is possible that it will cause disruptions and problems for the business.
Important aspects to consider when dealing with stakeholder conflict
As directors and managers, we should look at following issues in deciding how to handle stakeholder conflict:
1. The type of business organization. Customers will be the most important stakeholderor for sole traders and partnerships, who strive for profit satisficing and profit maximization. Current shareholders and potential new investors will be a key stakeholder for public limited companies. For government-owned business in the public sector, meeting the needs of the local community will be crucial. The local community will also be very important for charities. New start-up businesses will give priority to banks, microfinance providers, venture capitals and angel investors. While for exporters and importers, the government who makes legal decisions about tariffs, quotas and interest rates will be of the utmost importance.
2. The objectives of the business. The importance of stakeholders will depend on business objectives. At the beginning of existence when the business is trying to survive, new customers will be crucial. When a business aims for growth, less profits will be allocated to the owners and more profit will be retained in the business for managers to use for expanding the business. With profit as the objective, the managers will have more to say than workers because the owners will be putting pressure on the management to maximize profitability. When a business is trying to gain market share, the customers and competitors will be crucial. Workers will have a lot to say when the business is trying to maximize short-term sales revenue as it will be their responsibility to attract customers through direct selling and sales promotions. When a public limited company aims to maximize shareholder value, the satisfaction of shareholders will be crucial. Finally, companies with strong Corporate Social Responsibility (CSR) objectives will of course treat the local community and the workers as the key stakeholders.
3. The degree of power of each stakeholder group. Suppliers and customers will be powerful for multi-national businesses selling standardized products to a mass market. Pressure groups will have much influence in countries with strong laws regarding customer and employee protection. If united workforce gets together to form a trade union, they will have a lot of influence over managers and the business owners. Workers will also be quite powerful in businesses that belong to labor-intensive industries.
Is it possible to solve stakeholder conflict?
There are many benefits in simultaneously meeting the competing needs of different stakeholder groups. However, meeting the needs of all stakeholders cannot really be achieved in short-term, but can somehow be achieved in the medium-term to long-term.
If we start and address the needs of employees and managers keeping them satisfied, it will most likely lead to a highly motivated, productive and effective workforce with low rates of absenteeism in the short-term and staff turnover in the medium term. Therefore, customer relationships, corporate image, increasing market share and maximizing profits can be achieved in the long-term as a result. Greater output and higher sales will also lead to more employment opportunities satisfying the needs of the local community for employment. In the end, shareholders will be pleased from the growth and profitability of the business thanks to higher dividends.
EXAMPLE 1: Marks & Spencer is very in tune with this objective by helping many different groups and types of people. Some strengths of Mark & Spencer’s are that they are in very close contact with the community. Many members of the community know the employees of the business first hand and their social actions are viewed by the community as a very good way to share the business’ profits. Therefore, Marks & Spencer is able to communicate well with its customers and have a good relationship with many different kinds of people in the community. Apparently profits increased steadily as the business did more in its object of social responsibility.
Therefore, by following the modern stakeholder concept with focusing more on corporate social responsibility approach of a business, we can meet objectives of different groups in ways that result in bigger benefits to shareholders in the long-term.
