Stakeholders Need Help

Accounting
Tutor: None Selected Time limit: 1 Day

Explain why a stockholder is considered a stakeholder when a company's financial statements are prepared.  Why a bank may be a stakeholder. Why an assembly line worker may be a stakeholder, a management executive.  The the general public be a stakeholder?  Fully explain your answers using illustrative examples if possible.

May 27th, 2015

your answer is divided in three parts as below:

1:

An annual report is a comprehensivereporton acompany'sactivities throughout the precedingyear. Annual reports are intended to giveshareholdersand other interested people information about the company's activities and financial performance. They may be considered asgrey literature. Most jurisdictions require companies to prepare and disclose annual reports, and many require the annual report to be filed at the company's registry. Companies listed on astock exchangeare also required to report at more frequent intervals (depending upon the rules of the stock exchange involved).

2

It is also an opportunity to openly discuss any risks and opportunities and demonstrate what you are doing to manage these.

Keep in mind that your bank remotely monitors your business performance and sector performance well before you address any problems or challenges with them.

Remaining pro-active with your bank highlights to them that you are managing your business.

Most good banks and bank managers are not just “fair weather friends”. They are in banking relationships for long-term benefits, including income through distribution of products and services.

Banks and their credit departments dislike surprises, and the more you treat your bank as a stakeholder the greater the support you will have from them.

Tips on how to manage your bank as a stakeholder:

·  Schedule regular meetings to provide an update on your business (quarterly meetings are a good target)

·  Provide good information flow on your business management (including management accounts on a quarterly basis, delivered in a timely manner)

·  Deliver timely annual tax returns and accounts

·  Provide timely forecasts for future sales and EBITDA

·  Understand your security structure (i.e. fixed & floating charges and covenants). In the good times your bank may be open to relax these; in the challenging times your bank may want to strengthen their position.

·  Monitor covenants on a monthly and quarterly basis. If you breach covenants you are able to engage with your bank early and agree on remedial action.

·  Highlight that you have trusted advisors (e.g. accountants, lawyers and insurance brokers). Having access to professional advisors demonstrates your ability to mitigate risk.

·  Diversify your banking relationships (e.g. have one bank for trading accounts and overdraft; another for leasing/hire purchase or trade). Having competitive tension in annual reviews is important for both parties.  It shows you are regularly benchmarking pricing and terms, and not solely dependent on one bank.

Treating your bank as a stakeholder in your business, and not the enemy, is likely to result in a sustainable relationship for both parties.

3,

Most businesses have a variety of stakeholder groups which can be broadly categorised as follows:

Stakeholder groups vary both in terms of their interest in the business activities and also their power to influence business decisions.  Here is a useful summary:

Stakeholder

Main Interests

Power and influence

Shareholders

Profit growth, Share price growth, dividends

Election of directors

Banks & other Lenders

Interest and principal to be repaid, maintain credit rating

Can enforce loan covenantsCan withdraw banking facilities

Directors and managers

Salary ,share options, job satisfaction, status

Make decisions, have detailed information

Employees

Salaries & wages, job security, job satisfaction & motivation

Staff turnover, industrial action, service quality

Suppliers

Long term contracts, prompt payment, growth of purchasing

Pricing, quality, product availability

Customers

Reliable quality, value for money, product availability, customer service

Revenue / repeat businessWord of mouth recommendation

Community

Environment, local jobs, local impact

Indirect via local planning and opinion leaders

Government

Operate legally, tax receipts, jobs

Regulation, subsidies, taxation, planning

Stakeholder poweris an important factor to consider whenever you are asked to write about the relationship between a business and its stakeholders. In the context of strategy, what is important is the power and influence that a stakeholder has over the business objectives.



May 27th, 2015

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