Cambridge Syllabus Notes

1.5 Stakeholders – Internal & External, Rights & Responsibilities, Conflict & Accountability, and Their Impact on Business Decisions

Learning objective

Explain how the aims, rights and responsibilities of different stakeholders influence business decisions. Assess each stakeholder’s relative importance and influence using the Influence‑Importance matrix and the Power‑Legitimacy‑Urgency (PLU) model, and evaluate how conflicts are managed.

1.5.1 Types of stakeholders

Internal vs. external classification

Internal stakeholders are directly involved in the day‑to‑day running of the business or have a legal/contractual link that gives them a say in internal matters (e.g., owners who sit on the board, employees, managers).
External stakeholders are outside the organisation but are affected by its activities or can affect its performance (e.g., customers, suppliers, government, local community, NGOs).

Stakeholder group	Internal / External	Typical aims	Key rights	Key responsibilities
Owners / Shareholders	External (most) – internal when they sit on the board	Maximise returns, increase share price, ensure long‑term growth	Voting rights, right to dividends, right to information	Provide capital, hold management to account, act in the company’s best interest
Employees	Internal	Job security, fair wages, safe conditions, career development	Employment contract, health & safety rights, right to unionise	Perform duties to agreed standards, respect policies, contribute to productivity
Managers	Internal	Achieve targets, develop teams, enhance reputation	Authority to make decisions within delegated limits	Implement strategy, steward resources, act ethically
Customers	External	Quality products, value for money, reliable service	Consumer‑protection rights, right to accurate information	Pay for goods/services, provide feedback, comply with terms of purchase
Suppliers	External	Steady orders, timely payment, long‑term contracts	Contractual rights, right to fair dealing	Deliver agreed quality & quantity, respect delivery schedules
Creditors / Banks	External	Repayment of loans, interest, low risk	Legal right to repayment, right to enforce security	Provide finance on agreed terms, monitor borrower performance
Government	External	Tax revenue, employment, compliance with regulations	Regulatory authority, right to levy taxes, right to enforce laws	Enforce legislation, provide public services, create a stable business environment
Local community	External	Environmental protection, employment opportunities, social welfare	Right to a healthy environment, right to be consulted on major projects	Support community initiatives, minimise negative externalities
Trade unions	External (represent internal employees)	Better pay, safe conditions, job security	Collective‑bargaining rights, right to organise	Represent members responsibly, negotiate in good faith
Media & NGOs	External	Transparency, ethical conduct, environmental sustainability	Freedom of expression (media), right to campaign (NGOs)	Provide accurate information, act as watchdogs, may influence public opinion

1.5.2 Conflict, accountability and stakeholder dialogue

Potential conflicts arise when stakeholder aims diverge (e.g., shareholders seek higher profits while the local community demands lower pollution).
Accountability mechanisms include:
- Corporate governance structures (board committees, audit & remuneration panels).
- Stakeholder dialogue (consultations, surveys, public meetings).
- Corporate Social Responsibility (CSR) policies that embed social and environmental objectives alongside financial ones.
Managing conflict – use negotiation, compromise, or “win‑win” solutions such as investing in cleaner technology that reduces environmental impact while improving long‑term profitability.

1.5.3 Assessing relative importance and influence

Step‑by‑step process

Identify every stakeholder relevant to the decision.
State each stakeholder’s primary aims (as listed above).
Analyse how closely the aims align or conflict with the organisation’s objectives.
Rate importance – how critical the stakeholder’s aims are to achieving the business’s goals (High / Medium / Low).
Rate influence – the power the stakeholder has to affect decisions (High / Medium / Low).
Justify the influence rating using the Power‑Legitimacy‑Urgency (PLU) model:
- Power – ability to impose will (e.g., a bank’s power to withdraw credit).
- Legitimacy – recognised legal or contractual right (e.g., employees’ contractual right to a safe workplace).
- Urgency – claim that requires immediate attention (e.g., a regulator’s deadline to comply with new safety standards).
Plot each stakeholder on the Influence‑Importance matrix.

Power‑Legitimacy‑Urgency (PLU) model – quick examples

Attribute	Example
Power	Bank that can call in a loan if covenants are breached.
Legitimacy	Employees’ statutory right to a minimum wage.
Urgency	Environmental agency’s notice to remediate a spill within 30 days.

Influence‑Importance matrix

Two‑dimensional grid: Importance (vertical) vs. Influence (horizontal).

Key Players – High Importance / High Influence (e.g., major shareholders, principal creditors).
Subjects – High Importance / Low Influence (e.g., customers in a monopoly market).
Context Setters – Low Importance / High Influence (e.g., media, NGOs).
Crowd – Low Importance / Low Influence (e.g., occasional tourists).

Sample plotted matrix (illustrative) – imagine a simple 2×2 chart where the “major creditor” sits in the top‑right quadrant (Key Player) and a local environmental NGO sits in the bottom‑right quadrant (Context Setter).

Stakeholder analysis checklist

Have I listed every internal and external stakeholder?
What are their main aims?
What rights and responsibilities do they hold?
How do their aims align or conflict with the business’s objectives?
What is their Power, Legitimacy and Urgency?
What rating (High/Med/Low) do I assign for importance and influence?
Where do they sit on the matrix and what strategic response is required?

1.5.4 How stakeholder aims shape business decisions

Linking aims → impact → decision

Decision area	Key stakeholder(s) (Importance / Influence)	Stakeholder aims	Resulting business action	How impact is measured
Pricing strategy	Customers (High / High)	Value for money, competitive price	Set price at market‑or‑slightly below; introduce promotional bundles.	Sales volume, market‑share change, price‑elasticity coefficient.
Product development	Shareholders (High / High) & Customers (High / High)	High returns for shareholders; innovative, reliable products for customers.	Allocate R&D budget to high‑margin items that meet identified customer needs.	Projected profit margin = (Profit ÷ Revenue) × 100; product‑life‑cycle revenue forecast; customer‑satisfaction score.
Location of new plant	Local community (Medium / High) & Government (Medium / Medium)	Environmental protection, job creation, compliance with planning rules.	Conduct community consultation, adopt green technologies, secure planning permission.	Community support index (survey %), environmental‑impact assessment rating, local employment figures.
Employee training	Employees (High / Medium) & Trade unions (Medium / Medium)	Career development, skill upgrades, safe working conditions.	Introduce up‑skilling programmes linked to performance incentives.	Turnover rate, productivity per employee (output ÷ staff), union satisfaction survey score.
Debt financing	Creditors / Banks (High / High)	Timely repayment, low risk, reasonable interest.	Maintain strong cash‑flow forecasts, negotiate fixed‑rate loans, keep debt‑to‑equity ≤ 0.5.	Interest‑coverage ratio = EBIT ÷ Interest expense; debt‑service‑coverage ratio; credit rating.
Corporate Social Responsibility (CSR) campaign	Local community (Medium / High), NGOs (Low / High), Media (Low / High)	Environmental stewardship, social welfare, positive publicity – the triple‑bottom‑line (people, planet, profit).	Launch community education programme, publish a sustainability report, obtain eco‑certification (e.g., ISO 14001).	Reputation score (media sentiment analysis), ESG rating, community goodwill survey (% favourable).

Measuring impact on stakeholders

Financial impact: profit share, dividend payout, cost savings, revenue change; e.g., profit margin = (Profit ÷ Revenue) × 100.
Non‑financial impact: employee morale (e.g., engagement score), turnover, customer satisfaction (e.g., CSAT = (satisfied customers ÷ total surveyed) × 100), brand reputation.
Reputational impact: media coverage volume, stakeholder trust indices, ESG or sustainability ratings.
Use quantitative data where possible and support with qualitative evidence (e.g., stakeholder comments, case‑study excerpts).

Practical tips for exam answers

Start with a concise identification and classification of stakeholders (internal / external).
State each stakeholder’s primary aim and link it directly to the decision under discussion.
Justify the importance and influence rating with PLU criteria – give a brief example for each attribute.
Reference the Influence‑Importance matrix and label the stakeholder’s quadrant (Key Player, Subject, etc.).
Explain how conflicting aims are managed (e.g., compromise, CSR, stakeholder dialogue).
Conclude by showing how the chosen decision maximises overall organisational objectives while satisfying the most important and influential stakeholders.

Summary

Effective business decision‑making requires a systematic analysis of who the stakeholders are, whether they are internal or external, and what rights and responsibilities they hold. By assessing each stakeholder’s importance and influence—using both the Influence‑Importance matrix and the Power‑Legitimacy‑Urgency model—managers can prioritise actions, anticipate and resolve conflicts, and measure the impact of decisions on financial performance, non‑financial outcomes, and reputation. This structured approach aligns with the Cambridge IGCSE/A‑Level Business syllabus and provides a solid foundation for exam success.

the impact of stakeholder aims on business decisions