Business and Technology · Governance in business organisations

Stakeholders and Their Influence on Governance

Updated 11 October 2026 · Fact-checked

A stakeholder is any person or group that affects, or is affected by, an organisation. Classify them as internal, connected or external. Then use Mendelow's matrix: high power and high interest means manage closely; high power, low interest means keep satisfied; low power, high interest means keep informed; low power, low interest means monitor.

Understand Stakeholders and Their Influence on Governance

A stakeholder is any individual or group with an interest in what an organisation does, or the ability to affect it. A shareholder is only one type of stakeholder: an owner who holds shares. Every shareholder is a stakeholder. Not every stakeholder is a shareholder.

BT groups stakeholders in three ways:

Internal: people inside the organisation, such as employees, managers and directors.
Connected: people with a direct financial or contractual link, such as lenders, customers, suppliers and distributors.
External: people with no direct link who are still affected or can still affect it, such as government, regulators, trade unions, pressure groups, the community and the media.

Shareholders are treated as internal (as owners) in some sources and as connected (through their financial link) in others. Follow the classification the question gives, or its wording. Be consistent in your answer.

Stakeholders want different things, so they often conflict. Shareholders want profit and dividends. Employees want pay and job security. Customers want low prices and quality. The community wants low pollution. Good governance means the board considers these interests and balances them, not only the owners' interests.

Mendelow's power-interest matrix helps decide how to treat each group. Power is the ability to influence the organisation. Interest is how much the stakeholder cares about what the organisation does. Plotting each group on these two axes shows how much attention it needs. A powerful group that is ignored can damage the organisation, for example through regulation, strikes or withdrawal of finance.

Key formulas to remember

Mendelow: high power, high interest: Key players → manage closely; Involve them in decisions. Example: major shareholders, key lenders.
Mendelow: high power, low interest: Keep satisfied; Do not overload them, but do not upset them. Example: a regulator in normal times.
Mendelow: low power, high interest: Keep informed; Communicate regularly. Example: local community groups, a small pressure group.
Mendelow: low power, low interest: Minimal effort → monitor; Watch for change in their position. Example: a small remote supplier.
Stakeholder classification: Internal | Connected | External; Internal: inside. Connected: direct contractual or financial link. External: no direct link.

How to solve Stakeholders and Their Influence on Governance questions

Use this method for any question on stakeholder type, interest, conflict or treatment.

1Read the scenario and list each stakeholder group named.
2Classify each one as internal, connected or external, using the definitions above.
3Identify what each group wants from the organisation (its interest).
4Decide how much power it has: can it withdraw money, labour, custom or approval, or impose rules?
5Place it on the power-interest matrix and name the matching strategy.
6Spot conflicts: where does one group's aim reduce another's?
7Choose the option that fits the exact wording, such as 'keep informed' rather than 'manage closely'.

Quickest way: Two-question shortcut

When to use it: Use in Section A objective test questions when time is tight.

Ask: does this group have a direct financial or contractual link? If it works inside, it is internal. If it has a direct link, it is connected. If neither, it is external.
Ask: high or low power? High or low interest?
Match to the four boxes: high-high manage closely, high power only keep satisfied, high interest only keep informed, neither monitor.
Eliminate options that swap the two axes.

Common mistakes in Stakeholders and Their Influence on Governance

Treating shareholder and stakeholder as the same word.
Shareholders are the best-known stakeholders.
Fix: Remember shareholders are one subset. Stakeholders include employees, customers, government and the community.
Classifying customers or suppliers as external.
They sit outside the company building.
Fix: They have a direct contractual link, so they are connected.
Swapping power and interest when using the matrix.
Both axes sound similar under pressure.
Fix: Power is ability to influence. Interest is how much they care. High power alone means keep satisfied; high interest alone means keep informed.
Assuming a stakeholder's position never changes.
Students plot the group once and stop.
Fix: Interest can rise after an event, such as a factory closure announcement. Power can also shift, so re-plot when the facts change.
Saying the board should only serve shareholders, or only serve all equally.
Confusing shareholder and stakeholder views.
Fix: Say the board must balance competing interests, giving weight to those with most power and legitimate claims.
Naming a conflict without saying why it conflicts.
Students list groups but skip the link.
Fix: Name both aims. For example, higher dividends reduce cash available for higher wages.

Worked examples

Example 1

A listed manufacturer plans to close a factory. Classify the following as internal, connected or external: (1) the factory employees, (2) the bank that lent to the company, (3) the local environmental pressure group.

Show the solution

Employees work inside the organisation, so they are internal.
The bank has a direct financial link through its loan, so it is connected.
The pressure group has no direct link but is affected by the company's activities and can influence it, so it is external.

Answer: (1) Internal, (2) Connected, (3) External.

Example 2

A government regulator has high power over a food company but shows little interest in its day-to-day operations. Local residents are very concerned about its noise but have little power. Using Mendelow's matrix, state how the company should treat each.

Show the solution

Regulator: high power, low interest. This is the 'keep satisfied' box.
Residents: low power, high interest. This is the 'keep informed' box.
So the company should meet regulatory requirements without burdening the regulator, and should communicate regularly with residents about noise and actions taken.
Keep residents informed and watch for any rise in their power, for example through media or political support.

Answer: Regulator: keep satisfied. Residents: keep informed.

Exam tips

Learn the three categories with one example each, then check each scenario word against them.
In matrix questions, read the power and interest clues first, then pick the strategy. Do not guess from the stakeholder's name.
For multiple response questions, select exactly the stated number and check each option separately.
In conflict questions, state both stakeholders' aims in your head before choosing the answer.
Expect scenario wording such as 'the group has little say but cares greatly'. Translate it to low power, high interest.

Practice questions from Governance in business organisations

Stakeholders and Their Influence on Governance in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Stakeholders and Their Influence on Governance: frequently asked questions

What is the difference between shareholders and stakeholders?

Shareholders own shares and so own part of the company. Stakeholders are anyone affected by or able to affect it, including shareholders, employees, customers, suppliers and the government. All shareholders are stakeholders, but most stakeholders are not shareholders.

How do I tell connected from external stakeholders?

Connected stakeholders have a direct financial or contractual relationship with the organisation, such as lenders, customers and suppliers. External stakeholders have no such direct link, such as government, pressure groups and the media.

What does Mendelow's matrix tell you?

It shows how to treat each stakeholder based on power and interest. High power and high interest means manage closely. High power and low interest means keep satisfied. Low power and high interest means keep informed. Low on both means monitor.

What are examples of stakeholder conflict?

Shareholders want higher dividends while employees want higher pay. Customers want low prices while suppliers want higher prices. The community wants less pollution while management wants lower costs. Each pair competes for the same limited resources.