Stakeholder model versus shareholder model

Stakeholders and their objectives

Owners and staff are usually treated as internal stakeholders; the specification asks you to distinguish internal from external.

The two models

• Shareholder model: the main purpose of the business is to maximise returns to shareholders, through the share price and dividends. Other stakeholders matter only so far as they affect shareholder value. Clear and measurable, but may encourage short-termism and neglect of staff, communities and the environment.
• Stakeholder model: the business should consider the interests of all stakeholders when setting objectives and making decisions. It may build loyalty, reputation and long-term success, but objectives are harder to measure, decisions are slower, and managers may use it to excuse poor financial performance.

Conflict between objectives

Profit-based objectives and wider stakeholder objectives often conflict:

• Cutting costs by moving production abroad raises profit for shareholders but costs local jobs.
• Raising prices increases revenue but harms customers.
• Paying higher wages helps staff but reduces dividends in the short term.
• Investing in cleaner technology helps the community but costs money now.

Some objectives can be aligned in the long run: well-treated staff may be more productive, and an ethical reputation can raise sales. In the January 2025 WBS13 paper, Question 1(e) asked candidates to assess the effect of a price rise on external stakeholders (12 marks).

Judging

Which stakeholders win depends on their power and interest (Unit 1 stakeholder mapping), the firm's objectives and culture, its financial position (a struggling firm may put survival first) and the time scale. Good answers name the specific stakeholders affected and explain both short- and long-term effects.

Worked example

A clothing retailer plans to switch to cheaper suppliers in a country with weak labour laws. Analyse the conflict between shareholders and other stakeholders.

1. Shareholders: lower costs raise profit margins, which may lift the share price and dividends.
2. Workers in the supply chain may face poor conditions; customers concerned about ethics may boycott.
3. If the poor conditions become public, the brand may suffer, which in the long run harms shareholders too.
4. So the conflict is strongest in the short term; in the long term the interests may align.

Answer: Short-term gain for shareholders versus harm to workers and reputational risk that may hurt shareholders later.

Check yourself

1. Which of these is an external stakeholder?
   • Employees
   • Managers
   • Directors
   • Suppliers
   Show answer

   Suppliers. Suppliers are outside the organisation.

2. Under the shareholder model, the main aim of a business is to
   • meet the needs of all stakeholders equally
   • maximise returns to its owners through share price and dividends
   • maximise employment
   • minimise prices for customers
   Show answer

   maximise returns to its owners through share price and dividends. Owners come first.

3. Which is a likely benefit of adopting the stakeholder model?
   • Faster decisions because only owners count
   • Objectives become easier to measure
   • Higher dividends in every year
   • Stronger loyalty and reputation that support long-term success
   Show answer

   Stronger loyalty and reputation that support long-term success. Considering others can build goodwill.

4. A business closes a factory and moves production abroad to cut costs. Which pair of stakeholders is most likely to be in conflict?
   • Shareholders and local employees
   • Customers and suppliers
   • Government and lenders
   • Managers and directors
   Show answer

   Shareholders and local employees. Owners gain from lower costs; local staff lose jobs.

5. Which objective is most typical of suppliers?
   • Rising dividends
   • Low prices for products
   • Regular orders and prompt payment
   • Low pollution in the area
   Show answer

   Regular orders and prompt payment. Suppliers want reliable business and to be paid.

6. Explain how meeting the needs of employees could also benefit shareholders in the long run.
   Show answer

   Better pay and conditions can raise motivation and productivity and reduce labour turnover, which lowers costs and improves service, raising profit and therefore dividends and the share price.. Link employee benefits to performance, then to shareholder returns.

Practise with instant feedback Print this lesson

Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Business specification (XBS11/YBS11, 2018), Unit 3 Business decisions and strategy and Appendices 6, 7 and 9
• Pearson Edexcel IAL Business WBS13/01 mark scheme, January 2025

Last updated 8 November 2026. Spotted a mistake? Tell us.