1-5a Classifications of Stakeholders Firms can separate the parties involved with their operations into at least three groups. As shown in Figure 1.4, these groups are the capital market stakeholders (shareholders and the major suppliers of a firm’s capital), the product market stakeholders (the firm’s primary customers, suppliers, host communities, and unions representing the workforce), and the organizational stakeholders (all of a firm’s employees, including both non-managerial and managerial personnel). The objectives of stakeholder groups often differ from one another, sometimes placing those involved with a firm’s strategic management process in situations where trade-offs have to be made. The objectives of stakeholder groups often differ from one another. Dependence is the most critical criterion
in prioritizing stakeholders; that is to say, the stakeholder group with whom the firm has the greatest dependence for its commitment has the greatest amount of power to influence the firm’s actions. 1. Capital Market Stakeholders - Shareholders and lenders both expect a firm to preserve and enhance the wealth they have entrusted to it. The returns they expect are commensurate with the degree of risk they accept with those investments. Dissatisfied lenders may impose stricter covenants on subsequent borrowing of capital. Dissatisfied shareholders may reflect their concerns through several means, including selling their stock. Alternatively, as stakeholders, these investors might take actions to improve the firm’s performance. Because of their importance in terms of supporting needs for capital, firms typically seek to find ways to better satisfy the expectations of capital market stakeholders. 2. Product Market Stakeholders - Customers, as stakeholders, seek reliable products at the lowest possible prices. Suppliers seek loyal customers who are willing to pay the highest sustainable prices for the products they receive. Although all product market stakeholders are important, without customers, the other product market stakeholders are of little value. Therefore, the firm must try to learn about and understand current and potential customers. Host communities
include the national (home and abroad), state/province, and local government entities with which the firm interacts. Governments want companies willing to be long-term employers and providers of tax revenue without placing excessive demands on public support services. The interests of unions include secure jobs and desirable working conditions for members. 3. Organizational Stakeholders - Employees—the firm’s organizational stakeholders—expect the firm to provide a dynamic, stimulating, and rewarding work environment. Employees generally prefer to work for a company that is growing and in which they can develop their skills, especially those required to be effective team members and to meet or exceed global work standards. 1-6 Strategic Leaders Strategic leaders are people located in different areas and levels of the firm using the strategic management process to select actions that help the firm achieve its vision and fulfill its mission.
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