"There is no greater enemy of effective thinking than divided interest." ~ John Dewey, How We Think (1910)

Different stakeholder groups have different interests, which can conflict. Conflict refers to the mutually exclusive and incompatible interests of different stakeholder groups. If this is not managed, it often leads to protracted disagreements, disputed and arguments in the workplace.

Examples of possible conflict between different stakeholders’ interests include:

• Employees demand higher wages, which raises production costs so can reduce the amount of profits from which shareholders receive dividend payments.
• Similarly, senior managers and directors may demand large bonuses for their work, but this may also reduce the profits available to distribute to the company’s shareholders.
• Shareholders may demand regular and higher dividend payments, but this may result in less retained profits (see Unit 3.1) available for production and marketing managers to improve their functional roles.
• Customers may want lower prices, but this reduced the firm’s profit margin so can upset the company’s shareholders.
• Employers may want greater efficiency and productivity gains by investing in new technologies, but this might create job losses for employees.
• The local community want demand businesses operate in a socially responsible way and create jobs in the local area, although this can create congestion and noise and air pollution in the local area, thereby upsetting other members of the community.

Night flights can be convenient for customers, but noisy for local residents living near airports

Hence, it can be extremely challenging to satisfy the diversified interests of all stakeholder groups.

Nevertheless, there can be possible areas of mutual benefits between stakeholders’ interests. For example:

• Business expansion can generate more profits for shareholders, whilst creating more jobs in the local community. Business growth can also generate more tax revenues for the government. Suppliers also benefit from more orders.
• Customers want value for money, with competitive prices and good quality products. This does not necessarily cause a conflict with managers and directors as businesses that create value for money are most likely to sustain profits in the long term, generating a healthy return on investment for shareholders.
• Improved financial rewards for all employees will cost more, but can result in a more motivated, loyal and productive workforce. Ultimately, resolving the potential conflict in interest between employees and employers can lead to improved efficiency and higher profits.

In reality, it is likely that stakeholder conflict is likely to exist at least to some extent (especially for large organizations) due to the varying interests of the different stakeholder groups.

Satisfying the interests of stakeholders is therefore a particularly difficult balancing act of striving to meet the complex and competing interests of all stakeholder groups.

• Compromise involves stakeholders deliberately making considerations for other stakeholders, despite their differences. For instance, workers might strive to improve their productivity in return for the demands for higher wages and salaries; employers might choose to stagger closure of businesses (to cut costs) in order to allow workers more time to seek alternative employment.

• Conciliation is a service that strives to align the incompatible interests of different stakeholder groups. Conciliators support both parties in a dispute to better understand each other’s interests and needs, which can help to resolve stakeholder conflicts.

• Arbitration is a service used to resolve stakeholder conflict by considering the perspectives of all parties involved in the dispute. All stakeholder groups in conflict agree to accept the decision or judgment of the arbitrator (see Unit 2.6), which is made independently.

• Worker participation (also called industrial democracy) involves employees having a direct say in how things are done in the workplace. This enables workers to have some degree of decision-making power, which can help to minimise potential conflict between employees and employers, especially if worker participation helps to improve motivation and productivity.

• Share ownership schemes ­(see Unit 2.4) can help to resolve potential conflict between shareholders and employees. This is because workers are able to purchase shares (at a discounted price) in the company thereby entitling them to a share of the company’s profits, based on the degree of the company’s financial performance and success.

• Profit related pay (also see Unit 2.4) can resolve potential conflict between managers/directors and workers. In return for improved labour productivity, employees may be given a share of the company’s (higher) profits. This creates incentives for employees to work harder in line with the expectations of managers and directors.

• Public relations (PR) is used to communicate positive news about the organization with the press (media) and local community. Keeping them up to date and well informed about the organization’s operations and/or planned changes can reduce misunderstandings and potential stakeholder conflict.

The outcome of any method of conflict resolution largely depends on the relative bargaining power of the different stakeholder groups.

For example, large and internationally known pressure groups, such as Oxfam, Amnesty International and Greenpeace, can put huge pressures on businesses to act in a socially responsible way and to consider the interests of local communities.

Greenpeace is an international pressure group