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The reasons for conflict among stakeholders can vary between businesses. Although companies in different industries face the same stakeholders, the power and significance of their influence can differ. For example, negative campaigning by pressure groups can be significant for a commodity-based company rather than a service company.
Who are the business stakeholders? They can be customers, suppliers, employees, shareholders, governments, creditors, the general public, and local communities. They have goals and interests in the company, and company decisions and operations also affect them, either directly or indirectly.
Each strives to ensure the company accommodates their interests, and this becomes a difficult task. Moreover, their interests often conflict with each other, which then leads to conflict.
As a result, companies must decide which interests should be accommodated first. The right decision is important to build a good relationship with them in the long term, which will impact the company’s success.
Conflict is common as companies become more established and larger. At the beginning of the operation, the business strives to achieve survival. Of course, almost all stakeholders—except competitors—support it, and they don’t want the company to fail.
Stakeholder interest in the company
Before discussing stakeholder conflicts, let’s describe some examples of stakeholder’s interests and concerns in a company.
Shareholders
The company’s owners and shareholders prioritize financial returns. They expect consistent dividend payouts and company growth, leading to a rising stock price and capital gains. Their primary concerns include profitability, market share, competitive edge, and responsible corporate governance.
While traditionally focused on short-term gains, some shareholders are increasingly factoring in a company’s commitment to environmental, social, and governance (ESG) practices. Companies are finding that strong ESG practices can mitigate risks, improve brand reputation, and even attract long-term investors.pen_spark
Employees and management
Both employees and management share a desire for competitive salaries, benefits packages, and a positive work environment. They value opportunities for career advancement, training, and development, along with job security and recognition for their contributions.
Employee satisfaction directly impacts a company’s productivity and reputation. Strong employer branding that fosters a sense of purpose and belonging can be a competitive advantage in attracting and retaining top talent. A happy and engaged workforce is more likely to go the extra mile, leading to innovation and improved customer service.
Customers
Customers are the lifeblood of any business. They seek high-quality products or services at affordable prices. However, this can create a conflict. Maintaining quality often requires higher production costs, potentially impacting profit margins. Customers also value aspects like data privacy, exceptional customer service, and ethical business practices.
In today’s market, consumers are increasingly making purchasing decisions based on a company’s social and environmental impact. Building brand loyalty requires companies to demonstrate their good corporate citizenship. Companies that prioritize ethical sourcing, sustainable practices, and social responsibility are more likely to resonate with today’s conscious consumers.
Governments
National and local governments have a stake in a company’s operations. They set regulations to ensure environmental protection, fair labor practices, and consumer safety. They also rely on businesses to generate tax revenue and create jobs.
Companies that prioritize responsible business practices and community engagement are more likely to navigate the regulatory landscape smoothly and build goodwill with local authorities.
Suppliers
Reliable suppliers are essential for a company’s smooth operations. They are interested in timely payments and maintaining long-term business relationships. Suppliers may offer discounts for larger orders, creating tension between cost efficiency and supporting local suppliers who might offer smaller quantities.
Building strong relationships with suppliers fosters trust and collaboration, ensuring a steady flow of materials and potentially leading to better pricing and innovative solutions.
Creditors
These are the lenders, typically banks or bond investors, who provide companies with financial resources through loans or bonds. Their primary concern is ensuring the company repays its debts on time and in full. They closely monitor a company’s creditworthiness, focusing on aspects like credit rating, liquidity (ability to meet short-term financial obligations), and solvency (overall financial health).
Strong financial performance with a steady flow of income makes a company a more attractive borrower, potentially securing better loan terms in the future. However, this focus on financial health can sometimes create tension with other stakeholders, such as employees, if cost-cutting measures are implemented solely to improve short-term profits for creditors.
Labor unions
These organizations represent workers’ interests and aim to secure fair treatment for their members. Their priorities include ensuring fair compensation, safe working conditions, and opportunities for professional development.
Labor unions can play a crucial role in advocating for employee rights and establishing clear communication channels between workers and management. However, their focus on employee benefits can create friction with shareholders who prioritize maximizing profits.
Public and local communities
The communities where companies operate have a stake in their success. Residents are interested in the jobs a company creates and its overall impact on the environment. They expect businesses to operate responsibly and minimize negative externalities, such as pollution or waste.
Companies that prioritize environmental sustainability and invest in local initiatives can build strong relationships with the communities they operate within. This fosters a positive social license to operate and creates a more sustainable business environment in the long run. However, tensions can arise if a company’s operations negatively affect the community’s well-being, such as through pollution or job losses.
Reasons for conflict among stakeholders
Understanding the reasons behind stakeholder conflicts is crucial, but seeing real-world examples brings the concept to life. Here are some common scenarios where stakeholder priorities clash:
Balancing quality and price
Customers crave high-quality products at bargain prices. However, maintaining top-notch quality often requires using premium materials and labor, increasing production costs. This can squeeze profit margins, disappointing shareholders who prioritize financial returns. Companies must find clever solutions, like innovative production methods or strategic sourcing, to deliver quality without sacrificing affordability or profitability.
For instance, a clothing company might face pressure from customers for high-quality, ethically sourced cotton clothing at low prices. To address this conflict, the company could explore organic cotton partnerships with local farmers, invest in automation to streamline production without sacrificing quality or implement a transparent pricing model that explains the true cost of sustainable materials and ethical labor practices.
Efficiency vs. employee relations
During economic downturns, management might implement efficiency measures to maintain financial health. This could involve reducing personnel or salaries, a decision that prioritizes shareholder interests and short-term survival. However, such measures can lead to employee layoffs and decreased morale, negatively impacting employee relations and potentially hindering long-term productivity.
Imagine an airline facing economic pressure. Management might propose reducing staff through layoffs or pay cuts. This might appease shareholders in the short term, but it could lead to a demotivated workforce, higher customer service wait times, and a decline in overall service quality.
The airline might explore alternative solutions, such as temporary pay cuts with profit-sharing bonuses tied to future performance, early retirement incentives, or retraining programs to equip employees with new skills.
Short-term gains vs. Long-term sustainability
Investors often focus on short-term financial performance, pressuring companies to deliver consistent quarterly profits. This focus can sometimes discourage investments in areas like environmental sustainability or employee training, which might yield benefits in the long run but have a slower payoff. Companies need to strike a balance between delivering quarterly results and investing in future success.
A manufacturing company might face pressure from investors to prioritize short-term profits by cutting corners on environmental regulations. However, such practices could lead to fines, environmental damage, and negative publicity in the long run.
The company could instead explore sustainable manufacturing practices that might require upfront investment but can lead to cost savings in the long run through reduced waste and energy consumption. Additionally, a focus on sustainability can enhance the company’s brand image and attract environmentally conscious investors.
Transparency and information asymmetry
Stakeholders often lack complete information about a company’s operations or finances. This lack of transparency can breed suspicion and distrust.
For instance, a company might prioritize secrecy about offshore operations to avoid scrutiny, even though such secrecy could raise concerns among local communities about labor practices or environmental impact. Open communication and clear reporting are essential for building trust with stakeholders.
A mining company operating overseas might face concerns from local communities about its environmental impact. If the company lacks transparency about its operations and environmental practices, it can lead to protests and damage community relations.
The company can address this by implementing clear communication channels with local communities, conducting regular environmental impact assessments, and allowing independent inspections to build trust and demonstrate its commitment to responsible practices.
