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9609 · 1.5.1

Business stakeholders — practice questions

Practice and worked examples for 9609 Business stakeholders. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Factory plans automation cutting 200 jobs but raising profit by $3m. Identify three stakeholder groups and their likely views.

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Shareholders: Support — $3m profit rise, higher dividends and share price.

Employees (and unions): Oppose — 200 redundancies, community unemployment; may strike (2.1.7).

Local community: Mixed — lost spending power vs tax base if firm stays profitable.

Customers: Neutral/positive if quality/cost improves; negative if service suffers during transition.

Government: Concern over unemployment — may offer retraining grants; wants tax revenue maintained.

Worked example 2

EcoPlastics Ltd made a net profit after tax of $2,500,000 this year. The board is considering two options for using this profit:

  1. Pay a high dividend to its shareholders, who own a total of 5,000,000 shares.
  2. Reinvest the profit into new, quieter machinery to reduce noise pollution affecting the local community.

Calculate the dividend per share if 70% of the profit is paid to shareholders. Explain the conflict between the shareholders and the local community in this scenario.

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Step 1: Calculate the potential dividend per share.

  • Formula: Total Dividend Payout / Number of Shares
  • Profit allocated to dividends: 70% of 2,500,000=0.70∗2,500,000=2,500,000 = 0.70 * 2,500,000 = 1,750,000
  • Number of shares: 5,000,000
  • Calculation: $1,750,000 / 5,000,000 shares = $0.35 per share

Step 2: Analyse the stakeholder objectives.

  • Shareholders: Their primary objective is to maximise their return on investment. A dividend of $0.35 per share is a direct financial return, so they would strongly support this option.
  • Local Community: Their objective is to minimise negative externalities like noise pollution from the factory. They would prefer the company to use the profit to buy quieter machinery, improving their quality of life. They receive no direct benefit from the dividend payment.

Step 3: Explain the conflict.

The conflict is a classic 'profit vs. people' scenario. The $2,500,000 profit is a finite resource. Using it for one purpose (dividends) means it cannot be used for another (reinvestment in community-friendly machinery).

  • Option 1 (High Dividends): This satisfies shareholders but ignores the concerns of the local community, potentially leading to complaints, protests, or legal action, which could damage the company's reputation and long-term profitability.
  • Option 2 (Reinvestment): This satisfies the local community and builds corporate social responsibility, but it means shareholders receive a lower (or zero) dividend, failing to meet their primary objective. This could lead to shareholders selling their shares, causing the share price to fall.

Conclusion: The management of EcoPlastics Ltd must balance these conflicting interests. A possible compromise could be to allocate a portion of the profit to a smaller dividend and use the remainder to begin a phased investment in the new machinery.

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