Chapter 11: Stakeholders

Question 1

The relationships of stakeholders with a company PACAI

Answer 1

• Principal – provides capital to the company and expects a return - fixed or variable returns exist
• Agency – appointed by the company to perform a specific role (directors, trustees, managers)
• Controlling – supervise the principals or agents; aim to minimise risk faced by various parties (regulators, government, professional bodies)
• Advisory – advises the principles or agents
• Incidental – affected by the behaviour of principals or agents

Question 2

How to manage agency risk BIC ACT

Answer 2

• Business plan and strategy should reflect interest and requirements of stakeholders
• Interest and objectives of stakeholders of stakeholders understood
• Communication needs of stakeholders acknowledged
• Align interest as far as possible
• Communicate misalignment and resulting action with stakeholder
• Transparent communication

Question 3

List of stakeholders GRAP DECS RCP

Answer 3

• Government
• Regulators
• Audit
• Public
• Directors
• Employees
• Customers
• Shareholders
• Ratings agencies
• Creditors
• Partners

Question 4

Areas where agency risk can arise MELD ERA

Answer 4

• Merger aversion
• Employee remuneration
• Low risk management decisions
• Dominant CEO risk (Hierarchy risk)
• Expected returns of finance providers
• Regulatory misalignment
• Asset allocation of pension schemes

Question 5

The importance of the separation of ownership IEC

Answer 5

• Expertise without capital
• Invest without getting involved
• Continuity of management despite ownership changes

Question 6

Benefits and pitfalls of strategic partnerships PENS WRIC

Answer 6

• Product development is faster
• Economies of scale achieved
• New markets accessed
• Share financial risks
• Wasted resources
• Reputational damage
• IP lost and conflict about IP ownership
• Conflict of interest

Question 7

Risk perspective of stakeholders determined by TRAC

Answer 7

• Term of interest of stakeholder: Path of least resistance vs. path of most benefit
• Remuneration/Investment return of stakeholder
• Appetite for risk: Risk-reward structure for the stakeholder
• Career growth prospects of stakeholder: Hierarchy & takeovers of a company