Financial Stakeholders

Financial Stakeholders The stakeholders in an organisation may be interested in financial aspects of an organisation’s performance and management. In particular, they will be interested in how an organisation’s performance is likely to impact upon them. Other people have a stake in and use for the financial information that results from what you and others do in your organisation. The way in which financial information is used and compiled into financial reports and statements is heavily influenced by perceptions of what these users need and expect. Table 2 summarises stakeholders’ main needs from and interests in an organisation’s financial information. Table 2 Stakeholders' financial information needs and reasons for them Internal Main external Other external Managers Owners/shareholders Government agencies Planning, controlling, decision-making and stewardship (safeguarding assets) Calculating returns if investing capital Taxation Internal controls Holding managers to account for financial (and/or other) performance Informing regional and national economic development, competition, regulation and/or employment policies Context for their own remuneration Employees Lenders/financiers Local communities Future job prospects Repayments and interest on loans or investment* Source of local employment, or of local pollution or congestion Comparison with conditions in other organizations Management board/governors Suppliers The general public Responsibility and accountability to stakeholders for financial performance Likelihood of being paid Context of employment or environmental concerns Future growth/survival prospects Public sector organisations’ use of tax Customers/clients Competitors Prospects for the organisation remaining a supplier Knowledge to inform their own strategies Donors Cost-effectiveness *In the private sector, money for interest or repayment comes mainly from sales or revenues, whereas in the public sector it comes mainly from taxation. Because of the legal constraints on what public sector organisations can do, and the near certainty of their taxation income, these organisations often attract very good credit ratings and so can borrow at competitive interest rates. Voluntarily sector organisations may have less certain sources of funding and therefore may have difficulty in securing loans. In all cases, lenders will be looking at the available information to make a judgement about an organisation’s financial stability. Typical internal stakeholders with financial information interests include managers and employees, and also the board of management directors or, in the not-for-profit sector, bodies such as school administrators, the board or management committee, elected members of local government, and so on. Some of these management bodies may include stakeholders whose position is difficult to determine in terms of whether they are internal or external, such as non-executive directors or trustees. Some other groups may also be hard to define in these terms, for example self-employed staff on short-term contracts, volunteers and trade union officials. Similarly, elected members of local government from opposition political parties and those whose parties are in power have different interests in a local authority’s financial information. Typical external stakeholders include customers or clients, those owners or shareholders who do not play a part in governing or managing, lenders, financiers and guarantors, suppliers of goods and services, donors, government agencies and local communities. Other groups that may be interested in your organisation’s financial information include competitors, pressure groups, the media and the general public. Different stakeholders may wish to consider financial information available to them from slightly different perspectives. For example, employees may be interested in the stability of their employer in terms of risk to their jobs but may also look at the profitability with a view to pay expectations/negotiations. Also, suppliers may wish to assess the creditworthiness of their customers. Are they likely to have the ability to pay their debts when they fall due and are they financially stable such that the business relationship is likely to last. Customers may wish to assess the profitability to see if there may be room for movement on pricing and, again, be interested in the financial stability of the organisation as a way of judging the reliability of future supply. A shareholder may want to consider the likely returns and risks associated with investing in an organisation. Fund providers such as governments and charitable donors may want to consider the stewardship of their funds – has the money been spent wisely and in line with the objectives of the organisation.