Stakeholders and Conflicts of Objectives

A company is not just its owners. A bank has lent it money and wants to be repaid. Its staff want pay and secure jobs. The government wants tax, compliance and employment. Customers want quality and price, suppliers want to be paid on time, and the community near the factory wants clean air and decent behaviour. All of them can affect what the company does, and their wishes often conflict.

This topic defines stakeholders, describes the main groups and what each wants, explains the factors that decide whose interests win, and shows the typical conflicts, including the one the whole of corporate governance is built around: the conflict between shareholders and the managers who run the company for them. The next topic covers agency theory.

Stakeholder analysis is a standard scenario skill: you are given a company, asked who has an interest and what each wants, and asked to advise on a conflict. The numbers in this topic show how a conflict can be quantified, for example the cost of a wage increase and the headroom under a loan covenant. Read financial objectives first.

Who the stakeholders are, and what they want

Stakeholders are everyone with a vested interest in the activities or performance of a company. The theoretical objective of a private company may be the wealth of its owners. But other individuals and groups have an interest in what the company does and may be able to influence its objectives. They are grouped in categories, each with its own interests.

• Shareholders. They want a suitable return and maximum wealth. Some are long-term investors interested in longer-term share price growth and dividends; others are short-term investors hoping for a quick capital gain or high short-term profit and dividends.
• Directors and senior managers. They lead the company. Their interests are career advancement, higher income, good working conditions and personal wealth.
• Other employees. They want salary or wages, job security and career prospects. They tend to have less influence than the directors, unless they have strong trade union representation or specialist skills the company relies on.
• Lenders. Banks and bondholders want to protect their investment. If the company is heavily in debt, credit risk is a concern: they care about the ability to pay interest and repay the principal, and they do not want the company to borrow even more.
• The government. It regulates commercial activity (as regulator); collects tax on profits, on employment income and on sales; wants the economy to provide employment; and may be a customer, since some companies are major suppliers to the government.
• Customers. They have an interest in the actions of companies whose goods or services they buy and may be able to influence them.
• Suppliers. Major suppliers may have some influence over a company’s actions.
• Society as a whole. Concerns include business ethics, human rights, protection of the environment, preservation of natural resources and avoiding pollution. A poor reputation can lead to public pressure, new legislation or loss of customer support.

Companies therefore often state their objective as increasing shareholder wealth, but subject to satisfying other stakeholders: rewarding employees well, being a good employer, acting ethically and showing concern for social and environmental issues.

What decides whose interests count

The ability of a stakeholder group to influence what the company does depends largely on two things: how far its interests can be accommodated and do not conflict with those of other groups, and the power of the group to determine or influence the company’s objectives and strategies.

A useful way of classifying stakeholders is by power and interest:

• a group with high power and high interest (such as a major shareholder or the lender whose consent is needed) must be managed closely
• high power and low interest, kept satisfied
• low power and high interest, kept informed
• low power and low interest, monitored

Conflicts between stakeholder objectives

Stakeholders’ interests may be incompatible. When they conflict, either a compromise is found so that each group is satisfied partly but not fully, or the company acts in the interests of the most powerful group and the interests of the others are ignored. In practice there is usually a combination: small concessions to some groups while acting mainly for the most powerful.

• Lenders against owners over gearing. The directors and shareholders may prefer to raise new finance by borrowing, because debt is usually cheaper than equity. Existing lenders may feel the company should not borrow more before increasing equity by issuing shares or retaining profit. Loan agreements may therefore contain covenants that limit gearing to a maximum. For example, a covenant allows debt up to 100% of equity. With equity of ₦400m and debt of ₦300m (75%), a further loan of ₦150m would take debt to ₦450m, which is 112.5% and a breach.
  The most the company can borrow is ₦400m − ₦300m = ₦100m.
• Government against company over tax. The government wants tax on profits; the company wants to minimise its tax within the law.
• Shareholders against employees over pay. A company cannot maximise returns to shareholders and also keep employees contented with high pay. For example, a 5% rise on a payroll of ₦400m costs ₦20m; after tax at 30% the profit falls by ₦14m, which is 14 kobo of earnings on each of 100 million shares.
• Profit against environment. A company cannot maximise short-term profit if it also spends money on environmental protection and safe waste disposal.

The most significant conflict of interest in a large company, especially a public company whose shares are traded on a stock market, is between the shareholders and the board of directors, particularly the executive directors, and other senior managers. This perceived conflict is the foundation of agency theory and of the principles of good corporate governance that developed from it, covered in the next topics.

The ideas in more depth

Why a company cannot please everyone

Resources are limited. A naira paid in wages, tax or dividends cannot be paid to anyone else, so some interests must give way. The task of management is to decide the trade-offs openly and to explain them, and the more powerful the group, the more weight its interests carry.

Why long-term and short-term shareholders differ

A long-term investor wants the company to invest for growth even if this reduces this year’s dividend; a short-term investor wants a quick gain. The same decision, such as a major investment that cuts the dividend, can therefore please one shareholder and not another.

Sources and references

• No accounting standard governs this topic. The legal duties of directors are set out in the Companies and Allied Matters Act 2020 and, for listed companies, in the Nigerian Code of Corporate Governance (see the topic on governance).

These points are stated as at 5 November 2026.

Worked examples

1. Maximum debt.
   100% × ₦400m = ₦400m.
2. Headroom.
   ₦400m − ₦300m = ₦100m.
   A loan of ₦150m would be a breach (112.5%).

1. Extra cost.
   5% × ₦400m = ₦20m
   after tax ₦20m × 0.70 = ₦14m.
2. EPS effect.
   ₦14m ÷ 100m = 14 kobo lower.

1. Power and interest. High power, high interest: manage closely, with consultation, because the union can influence strategy.

How to answer in the exam

• Identify the stakeholder groups in the scenario and what each wants, with the evidence from the question.
• Say which conflicts arise and which group has the power.
• Quantify where figures allow, for example the cost of a concession or the headroom under a covenant.
• Recommend a compromise and say how it will be communicated.

Common mistakes in the exam

• Listing stakeholders without stating their interests.
• Forgetting that shareholders are not a single group (short-term and long-term).
• Ignoring the power of each group.
• Not naming the shareholder and director conflict as the most significant.
• Stating that employees always have little power.
• Giving a conflict without saying how it may be resolved.

Quick revision

• Groups: shareholders, directors and senior managers, employees, lenders, government, customers, suppliers, society.
• Influence = accommodation of interests and power.
• Conflicts end in compromise or the most powerful group winning.
• Biggest conflict in a large company: shareholders and directors.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

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