C) Stakeholder conflicts

The idea

Stakeholder conflicts occur when the objectives of one group contradict those of another, making it impossible to satisfy both simultaneously. A classic example is the conflict between shareholders and employees: shareholders desire profit maximisation, which may lead to cost-cutting, directly opposing employees' aims for higher pay. Similarly, customers wanting low prices can conflict with suppliers seeking higher prices. A firm expanding its factory to meet growth targets might clash with the local community's desire for minimal environmental disruption. Businesses must manage these trade-offs, often prioritising key stakeholders based on their power, to prevent industrial action, loss of customers, or negative public relations.

What earns the marks

• Conflicts arise between shareholders and employees over wage levels, as higher pay increases costs and reduces distributed profits.
• The pursuit of low prices for customers directly conflicts with the objectives of suppliers seeking higher margins and employees wanting better pay.
• Business expansion to meet shareholder growth objectives often clashes with the local community's desire for environmental protection and minimal disruption.
• Unresolved stakeholder conflicts can lead to severe consequences, such as strikes, consumer boycotts, or a loss of investment.
• Businesses manage stakeholder conflicts through strategies such as compromise, negotiation, and prioritising groups based on their relative power.

Common mistakes and how to put them right

• Stating that a business can easily satisfy all stakeholders at once.

  Put it right: Recognise that trade-offs are inevitable because resources are limited and objectives are often mutually exclusive.

• Focusing only on internal stakeholder conflicts.

  Put it right: Ensure you also consider conflicts involving external stakeholders, such as the business versus the local community or government.

• Assuming shareholders always win in a conflict.

  Put it right: Acknowledge that other stakeholders, like trade unions or government regulators, can wield significant power and force a compromise.

Exam tips

• Use a specific business scenario to illustrate a stakeholder conflict, detailing exactly why the two groups' objectives are incompatible.
• When evaluating a strategic decision, weigh up the short-term costs of appeasing a stakeholder against the long-term benefits of maintaining good relations.
• Consider the concept of stakeholder power and influence when discussing how a business might resolve a conflict.