CIMA E1 Syllabus A. Role of the finance function - Internal, Connected and external Stakeholders - Notes ^{2 / 4}

A Stakeholder

is a group or individual, who has an interest in what the organisation does, or an expectation of the organisation.

Internal Stakeholders

Internal stakeholders are intimately associated to the organisation and their objectives are likely to have a strong influence on how it is run.  

The main two examples of internal stakeholders are:

• Employees

• Management

Their interests to defend are
jobs / careers, money, promotion prospects and benefits.

Response risk if interests are not recognised
Pursuit of individual goals rather than shareholder interests
Resignation

Information relating to production, accounting records and payroll are most likely to be used by internal stakeholders.

Connected Stakeholders

Connected stakeholders can be viewed as having a contractual relationship with the organisation.  

The objective of satisfying the shareholders needs to be fulfilled, however, customers and finance objectives must be met if the company is to succeed.  

Some examples of connected stakeholders may include:

• Shareholders – interested in shareholders’ wealth measured by profitability, P/E ratios, market capitalisation

  Response risk if interests are not recognised
  Sell shares (e.g. to predator) or vote against management (e.g. at AGM)

• Customers – interested in the company’s products

  Response risk if interests are not recognised
  Buy elsewhere
  Damage reputation (e.g. bad publicity)
  Legal action

• Suppliers – interested in building long term relationship, on time payment of goods and profitable sales

  Response risk if interests are not recognised
  Refusal of credit
  Stop supplying
  Legal action (e.g. for unpaid debts)

• Finance providers - like banks interested in loan security

  Response risk if interests are not recognised
  Denial of credit
  Higher interest charges

External Stakeholders

External stakeholders have quite diverse objectives and have varying ability to ensure that the organisation meets its objectives.  

Some examples of external stakeholders may include:

• Non-governmental organisations

  Interests to defend
  Human rights

  Response risk if interests are not recognised
  Legal action

• Environmental pressure groups 

  Interests to defend
  Protecting the environment
  Human rights

  Response risk if interests are not recognised
  Publicity
  Direct action
  Sabotage
  Pressure on government

• Government and regulatory agencies – interested in tax, compliance with legislation and employment opportunities

  Response risk if interests are not recognised
  Tax increases
  Regulation
  Legal action
  Tariffs

• Trade unions – interested in protecting their members.

  Response risk if interests are not recognised
  Legal action
  Direct action