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Internal stakeholders are those inside the company who have a direct interest in and affect its operations. They contribute to the company’s internal functions or have ownership relationships. This term is also called inside stakeholders.
The opposite is external stakeholders. They are outside the organization and do not work to carry out functions within the company. Examples of external stakeholders are customers, suppliers, investors, and the local community.
Types of internal stakeholders
Internal stakeholders are the people closest to the organization, forming the backbone of any successful business. They include:
- Shareholders or stockholders: These internal stakeholders are the company’s owners. They invest capital in the company by purchasing shares, which gives them a claim on company resources and a stake in its profits.
- Employees: These internal stakeholders keep the company running day-to-day; employees encompass a wide range of roles. This includes the board of directors, who oversee the company’s strategic direction and represent shareholder interests. Managerial employees, such as department heads and executives, translate the board’s vision into actionable plans and supervise the work of non-managerial employees. Non-managerial employees form the essential workforce, carrying out the daily tasks and operations that deliver the company’s products or services.
Shareholders
Shareholders are internal stakeholders who hold ownership rights in a company. They act as the company’s financial partners by investing capital through the purchase of shares of stock. This investment grants them a claim on the company’s resources and a share of its profits.
Financing operations and growth
Shareholder capital plays a critical role in a company’s financial health. It provides the essential funding needed for:
- Day-to-day operations: Shareholder capital helps cover the costs of running the business, such as employee salaries, raw materials, and equipment.
- Growth initiatives: When a company seeks to expand its operations, open new locations, or develop new products, shareholder capital provides the resources to fuel these endeavors.
Potential returns on investment
Investing in a company carries the potential for shareholders to earn returns on their investment in two primary ways:
- Dividends: Companies may distribute a portion of their profits to shareholders on a regular basis. These periodic payouts are known as dividends.
- Capital gains: If a company’s stock price increases over time, shareholders can profit by selling their shares at a higher price than they purchased them for. This increase in value is referred to as a capital gain.
Influence on company decisions
The level of influence that shareholders can exert on a company’s direction depends on the percentage of ownership they hold. Here’s a breakdown:
- Majority shareholders: Shareholders who hold a significant portion (majority) of a company’s shares have greater influence. They can vote on key decisions, such as mergers and acquisitions, and even elect members of the board of directors. This allows them to shape the company’s strategic direction and policies to align with their interests.
- Minority shareholders: Shareholders with a smaller ownership stake have less influence on company decisions. However, they still retain certain rights, such as voting on proposals put forth by management and receiving information about the company’s financial performance.
In most companies, shareholders do not directly manage the company’s day-to-day operations. Instead, they elect a board of commissioners (also known as a board of supervisors) to act on their behalf. This board is responsible for overseeing the company’s management team and ensuring they act in the best interests of the shareholders.
While shareholders have a financial interest in maximizing profits and returns, a well-run company also needs to consider the long-term interests of all stakeholders, including employees, customers, and the community. Finding a balance between these various interests is essential for achieving sustainable business success.
Employees
Employees are the backbone of any organization, forming two distinct categories: managerial and non-managerial.
Managerial employees
As the internal stakeholders, managerial employees act as the company’s leadership team, strategically guiding the organization toward its goals. They play a crucial role in allocating resources effectively, developing and implementing long-term strategies, and providing direction and guidance to non-managerial employees.
- Resource allocation: They strategically allocate resources, such as budget, personnel, and equipment, to ensure efficient operations and achievement of objectives.
- Strategic development: Managerial employees play a key role in developing and implementing the company’s long-term strategy. This involves setting goals, identifying market opportunities, and formulating competitive plans.
- Supervisory leadership: They provide direction and guidance to non-managerial employees, overseeing their performance and ensuring tasks are completed effectively.
The board of directors: Setting the strategic course
The board of directors stands as the highest governing body within a company. Comprised primarily of experienced executives and often some external members, the board is responsible for:
- Strategic direction: The board sets the overall strategic direction for the company, ensuring alignment with long-term shareholder value creation.
- Oversight of management: They provide oversight of the company’s management team, including the CEO, and hold them accountable for achieving strategic goals.
Key managerial positions and skillsets
- Chief Executive Officer (CEO): The CEO holds the top leadership position, responsible for the company’s overall performance and strategic direction. They require a strong blend of business acumen, leadership skills, and vision.
- Chief Marketing Officer (CMO): The CMO spearheads the company’s marketing efforts, overseeing brand strategy, product marketing, and customer acquisition. A successful CMO possesses a deep understanding of consumer behavior and marketing trends.
- Chief Financial Officer (CFO): The CFO manages the company’s financial health, including budgeting, cash flow, and financial reporting. Expertise in accounting, finance, and risk management is crucial for this role.
Non-managerial employees
Non-managerial employees form the essential foundation of a company’s daily operations. As key internal stakeholders, they are the individuals who translate plans into action, carrying out the specific tasks and duties assigned to them. These tasks can vary greatly depending on the industry and department, but all contribute to the smooth running of the organization. Non-managerial employees are the backbone of various functions within a company, from production and customer service to marketing and administration.
Motivating and retaining the workforce
A company’s success hinges on a motivated and engaged workforce. To achieve this, it’s crucial to implement effective reward and recognition programs that acknowledge and appreciate the contributions of non-managerial employees. This can include:
- Performance-based compensation: Tying compensation to individual or team performance can incentivize employees to strive for excellence consistently. This can take the form of bonuses, commissions, or salary increases.
- Recognition programs: Publicly acknowledging and celebrating employee achievements fosters a sense of accomplishment and motivates individuals to continue exceeding expectations.
The impact of employee turnover
Employee turnover, when high, can be detrimental to a company’s operations. Here’s why:
- Loss of knowledge and skills: When experienced employees leave, valuable institutional knowledge and skillsets are lost. This can disrupt workflows, impact productivity, and create a need for intensive training of new hires.
- Reduced customer satisfaction: New employees require time to become proficient, potentially leading to a temporary decline in customer service quality.
- Increased costs: The recruiting, hiring, and onboarding process for new employees generates additional costs for the company. Minimizing turnover helps control these expenses.
Potential internal stakeholder conflicts
While internal stakeholders share a vested interest in the company’s success, their priorities can sometimes clash, leading to internal tension. Here, we explore two common conflicts:
Shareholder vs. Employee conflicts
Shareholders, primarily interested in maximizing their return on investment, may prioritize immediate returns over employee well-being. This can manifest in several ways:
Cost-cutting measures: Shareholders might pressure management to reduce labor expenses. This pressure can lead to employee layoffs, wage freezes, or cuts to benefits packages.
While such measures may improve short-term profits, they can create a demotivated workforce with high turnover (workforce satisfaction). This, in turn, can harm the company’s long-term prospects by hindering productivity and innovation.
Focus on quarterly earnings: An emphasis on short-term financial gains (quarterly earnings) might lead to decisions that undermine the company’s long-term sustainability.
For example, a company might neglect investments in employee training or research and development to boost quarterly earnings. This approach can hinder a company’s ability to compete effectively in the future and achieve sustainable business practices.
Solutions for shareholder vs. Employee conflicts
- Long-term focus: Companies can bridge the gap by emphasizing the connection between employee well-being and long-term shareholder value. Investing in employee training, development, and fair compensation fosters a more skilled and engaged workforce, leading to higher productivity and innovation. This, in turn, benefits shareholders in the long run.
- Transparency and communication: Open communication between management and employees builds trust and allows both parties to understand each other’s perspectives. Sharing relevant information about company performance and future plans helps employees feel valued and invested in the company’s success.
- Profit-sharing and incentive programs: Implementing profit-sharing or performance-based incentive programs can align employee interests with those of shareholders. When employees see a direct link between their efforts and the company’s profitability, they are more likely to be motivated and engaged.
- Focus on sustainable practices: Companies can demonstrate a commitment to sustainable business practices that consider the interests of both shareholders and employees. This might involve investing in renewable energy, implementing environmentally friendly practices, or promoting work-life balance initiatives.
Managerial vs. Non-managerial employee conflicts
Managerial employees tasked with meeting performance targets and deadlines may sometimes clash with non-managerial employees who feel overworked or pressured. This can occur in the following scenarios:
Unrealistic performance expectations: Managers set unrealistic performance goals without considering the work-life balance or sustainable workload of their teams. This can lead to employee stress, burnout, and decreased morale.
Overworked employees are more prone to mistakes and may leave the company, increasing recruiting and training costs.
Communication breakdowns: Ineffective communication between managers and non-managerial employees can create misunderstandings and frustration.
Employees might feel unheard or undervalued, leading to decreased engagement and productivity. Open and transparent communication is crucial for fostering a positive work environment and effectively managing performance expectations.
Solutions for managerial vs. Non-managerial employee conflicts
- Clear goals and workload management: Setting clear, achievable performance goals and ensuring a sustainable workload are crucial. Managers should involve their teams in goal-setting discussions to ensure goals are realistic and consider employee capacity.
- Effective communication: Regular communication between managers and employees is essential for addressing concerns and ensuring everyone is on the same page. Creating an environment where employees feel comfortable voicing their opinions and concerns fosters trust and reduces misunderstandings.
- Employee recognition and feedback: Publicly recognizing and rewarding employee achievements boosts morale and motivates employees to continue exceeding expectations. Regular feedback helps employees understand their strengths and areas for improvement, fostering a culture of continuous learning and growth.
- Work-life balance initiatives: Promoting healthy work-life balance is crucial for employee well-being and productivity. Companies can offer flexible work arrangements, encourage employees to take breaks, and prioritize mental health resources to create a supportive work environment.
