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. On the other hand, company decisions and operations also affect them, either directly or indirectly.
Each strives to ensure their interests are accommodated by the company. And it becomes a difficult task. Moreover, often, their interests conflict with each other, which then leads to conflict. As a result, companies must make decisions about which interests should be accommodated first. The right decision is important to build a good relationship with them in the long term, impacting 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. It will, of course, be supported by almost all stakeholders – except competitors – 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 want the company to continue to distribute dividends. In addition, they also want the company to continue to grow and profit. Thus, the company’s stock price rises, and they get a capital gain. They generally pay attention to growth, profitability, market share, competitive advantage, market position, directors’ succession planning, and corporate social responsibility.
- Employees and management want high salaries and benefits. They are also concerned with the work environment, career paths, promotions, training and development, job security, rewards and, recognition.
- Customers want the company to offer quality and inexpensive products. And, that means greater costs, reduced company profits. Privacy protection and customer service are other aspects they pay concern to. They are also increasingly paying attention to ethical behavior and corporate social responsibility.
- Governments want companies to run environmentally friendly businesses, comply with regulations, and not engage in anticompetitive behavior. The government also is interested in companies paying taxes, not generating negative externalities, encouraging positive externalities, creating more jobs and income for the people.
- Suppliers provide valuable input to the company. They are interested in timely payments and continuous purchases. They also like it when companies buy in bulk and don’t turn to alternative suppliers.
- Creditors provide loan funds. They can be banks or bond investors. They want the company to pay debts on time according to the agreement. They pay attention to aspects such as credit rating, liquidity, and solvency of the company. If they have a good ability to pay, they are also happy if the company borrows from them again.
- Labor unions want the best for their members. They have an interest in fair compensation, worker protection, and their members’ safety and health.
- Public and local communities have an interest in the jobs created by the company. They also want the company to run environmentally friendly business practices and do not generate environmental externalities.
Reasons for conflict among stakeholders
Interests between stakeholder groups may conflict with one another. They have different goals.
Each stakeholder seeks to protect its own interests. Each wants to make sure their goals are achieved. However, companies cannot always fulfill all stakeholder interests because some are contradictory and less strategic. So, companies must prioritize which interests must be accommodated first.
The following are some situations where a company has to make a decision and often leads to a conflict of interest:
- Product. Customers want the company to sell quality products at low prices. But, it was against the wishes of the management. High quality at a low price increases costs, reducing company profits. Shareholders may also dislike it because it potentially reduces the dividends they receive.
- Efficiency measures. Taking efficiency measures is a must for management during difficult times, such as during a recession. Management may wish to reduce personnel numbers or reduce personnel salaries. Likewise, shareholders also encourage management to take the option. Thus, the company can operate healthily and survive the crisis. However, reducing personnel is against the employees’ interest.
- Wages. Employees and management have an interest in getting high salaries. On the other hand, shareholders want to get high returns from dividends and capital gains. The decision to increase salaries is favored by employees and management but not by shareholders because company profits can be lower.
- Offshoring. Management may decide to outsource some business functions overseas to streamline operations and increase company profits. Employees, local communities, and governments can be less likely to like it because it reduces job opportunities for local workers and leads to downsizing.
- Inputs. The supplier’s interest in the company pays on time for purchased inputs. Instead, managers want to pay for it later to improve cash flow, such as paying for more critical expenses.
The conflicts above indeed make companies have to face difficult decisions. But, whatever it is, they must strive to effectively manage long-term stakeholder relationships. They need stakeholders to succeed. Likewise, stakeholders depend on each other for the company’s success.
Take the example between a manager and a supplier. Although concerns about when to pay can be conflicting between suppliers and managers. However, they need each other. Suppliers need to be on good terms with managers to secure future demand. Likewise, managers need input from suppliers to support company operations.