ACCA Applied Knowledge · Business and Technology

Stakeholders in business organisations: formula sheet

Full chapter guide

Key formulas

Internal stakeholders: Internal = work within the organisation; Directors, managers, employees. They are inside the organisation.
Connected stakeholders: Connected = direct economic or contractual link, but not inside; Shareholders, lenders, customers, suppliers. Some texts class shareholders as internal, so follow the wording of the question.
External stakeholders: External = no direct contract, but affect or are affected; Government, regulators, community, pressure groups, media.
Primary stakeholder: Primary = organisation cannot survive without their continued participation; Typically shareholders, employees, customers, suppliers, lenders.
Secondary stakeholder: Secondary = can influence or be affected, but not essential to survival; Typically media, pressure groups, wider community.
Key players: High power + High interest → Key players; Manage closely. Involve in decisions, consult often, aim for their support.
Keep satisfied: High power + Low interest → Keep satisfied; Keep content and avoid unpleasant surprises. They may move to key players if their interest rises.
Keep informed: Low power + High interest → Keep informed; Provide regular information and listen to views. They can lobby or form alliances with powerful groups.
Minimal effort: Low power + Low interest → Minimal effort; Monitor only. Do not spend significant resources.
Power-interest engagement rule: High power + high interest = manage closely; High power + low interest = keep satisfied; Low power + high interest = keep informed; Low power + low interest = monitor; This is Mendelow's approach. Match the strategy to the correct box, and state the reason.
Levels of engagement: Inform (one-way) → Consult (two-way, views sought) → Involve (shared decisions); The more power and interest a group has, the further along this scale the organisation should go.
Sources of stakeholder influence: Formal (voting, law) | Economic (money, custom, supply) | Collective (strikes, campaigns) | Indirect (media, government); Use this list to explain how a given group can affect the organisation.
Shareholder view in one line: Purpose = maximise shareholder wealth, within the law and ethical custom; Friedman's position. Managers act as agents of the owners.
Stakeholder view in one line: Purpose = balance the interests of all stakeholder groups; Stakeholders are those who affect or are affected by the organisation.
Key link: Stakeholder care → long-term sustainability → long-term shareholder value; The enlightened shareholder argument. Use it when a question asks if the views conflict.

Quick revision

A stakeholder affects or is affected by the organisation.
Internal stakeholders include employees and managers.
Connected stakeholders include shareholders, lenders, customers and suppliers.
External stakeholders include government, regulators, the community and pressure groups.
Shareholders typically want returns through dividends and share price growth.
Lenders want interest paid and the loan repaid safely.
Mendelow's matrix uses two axes: power and interest.
High power, high interest: manage closely.
High power, low interest: keep satisfied.
Low power, high interest: keep informed.
Low power, low interest: minimal effort.
Shareholder theory puts owners' wealth first; stakeholder theory balances the needs of all groups.

Common mistakes

Classing shareholders as internal stakeholders. Fix: In the standard ACCA three-way split, shareholders are connected. They do not work in the organisation. Follow the wording of the question if it says otherwise.
Treating customers and suppliers as external stakeholders. Fix: They have a direct commercial contract with the business, so they are connected.
Giving the organisation's objective instead of the stakeholder's. Fix: Ask what this group personally gains from the organisation, such as pay, dividends or safe products.
Saying all shareholders want the same thing. Fix: Note that some want dividends now and others want growth. Use this if the scenario hints at it.
Putting the axes the wrong way round, for example calling a high-interest, low-power group 'keep satisfied'. Fix: Remember that the first word of each approach follows power: high power means key players or keep satisfied. Keep informed is for those who only care.
Confusing key players with keep satisfied. Fix: Check interest. If the stakeholder is actively engaged, they are key players. If they are passive for now, they are keep satisfied.
Treating all stakeholders as equally important. Fix: Always rank stakeholders by power and interest before choosing a strategy.
Confusing informing with consulting. Fix: Informing is one-way. Consulting asks for views and expects a reply. Check whether the organisation is listening or only telling.
Saying Friedman believed business should ignore ethics and the law. Fix: Add the condition: maximise profit while staying within the law and basic ethical custom.
Thinking shareholders are not stakeholders. Fix: Shareholders are one stakeholder group. The theories differ in how much weight other groups get.

Exam tips

Read the question wording. If it says to use internal, connected and external, do not switch to primary and secondary.
In objective tests, look for the contract test: a contract usually means connected.
Do not assume low power means low importance. A secondary stakeholder such as the media can still harm the business.
For scenario questions, name the stakeholder, give the category and add one reason. That is how marks are earned.
Revise this topic first, because Mendelow's matrix and stakeholder conflict questions assume you can classify groups correctly.
Learn five standard pairings: shareholders v employees, shareholders v customers, shareholders v community, managers v shareholders and lenders v shareholders.
In multiple response questions, read how many answers you must select and choose exactly that many.
Use the scenario's exact words. A named cost cut points to a clash with employees, quality or the community.