The key stakeholders are customers, employees, directors and management, suppliers, competitors, lenders and financiers, regulators, government and the community.
Interests of stakeholders:
Shareholders – wish to see a good return on their investment and a stable future.
Employees – wish for a steady job and decent pay/conditions
Directors/management – wish to comply with their responsibilities as well as having similar interests to other employees.
Customers – look for appropriate, safe and reasonably priced products plus excellent customer service
Suppliers – are interested in sales volume and price, fair payment terms and long-term relationships.
Competitors – are keen to ensure there is vigorous but fair competition in the market.
Lenders and financiers – are keen for security and to see repayment of their investment in line with the agreed terms.
Regulators – wish to see the company complying with relevant rules and engaging with ideas for further improvement
Government wishes to see a stream of tax income plus a company which is a good corporate citizen.
The community – is interested in the company providing employment and preserving/supporting the environment

i. Organisational status – internal audit’s specific status in the organisation and the effect this has on its ability to be objective. Ideally, internal audit function should have a direct line of communication to the entity’s main board or audit committee, and be free of any other operating responsibility. External auditors should consider any constraints or restrictions placed on internal audit.
ii. Scope of function – the nature and extent of assignments which internal audit performs. External auditors should also consider whether management and the directors act on internal audit recommendations and how this is evidenced.
iii. Technical competence – whether internal audit work is performed by persons having adequate technical training and proficiency as internal auditors. External auditors may, for example, review the policies for hiring and training the internal audit staff and their experience and professional qualifications, also how work is assigned, delegated and reviewed.
iv. Due professional care – whether internal audit work is properly planned, reviewed and documented. The existence of adequate audit manuals, work programmes and working papers may be considered, also consultation
procedures.

i) Keener Ltd is pursuing shapers of society corporate social responsibility stance. Shapers of society stance regard financial considerations as of secondary importance or a constraint. These are activists, seeking to change society and social norms. Here the social role is the raison d’être of the business. Such organisations may see their strategic purpose as ‘changing the rules of the game’ through which they may benefit but by which they wish to assure that society benefits. In this role it is unlikely that they will be operating on their own: rather they are likely to be partnering with other organisations, commercial and otherwise, to achieve their purposes. The Keener Ltd has put Mercyland community at the centre of its purpose.

ii) Standard Ltd is pursuing the laissez-faire stance of corporate social responsibility. The laissez-faire view represents an extreme stance. Proponents argue that the only responsibility of business is to make a profit and provide for the interests of shareholders. It is for government to prescribe, through legislation and regulation, the constraints which society chooses to impose on businesses in their pursuit of economic efficiency. Organisations should meet these minimum obligations but no more. Expecting companies to exercise social duties beyond this can, in extreme cases, undermine the authority of government.

iii) Poor Ltd is pursuing enlightened self-interest stance of corporate social responsibility. Enlightened self-interest is tempered with recognition of the long-term financial benefit to the shareholder of well-managed relationships with other stakeholders. The justification for social action is that it makes good business sense. An organisation’s reputation is important to its long-term financial success. Given that employees see it as important that their employer acts in a socially responsible manner, a more proactive stance on social issues also helps in recruiting and retaining staff. So, like any other form of investment or promotion expenditure, corporate philanthropy or welfare provision might be regarded as sensible expenditure. The avoidance of ‘shady’ marketing practices is also necessary to prevent the need for yet more legislation in that area. Managers here would take the view that organisations not only have responsibility to their shareholders, but also a responsibility for relationships with other stakeholders (as against responsibilities to other stakeholders).

iv) High Ltd is pursuing a forum for stakeholder stance of corporate social responsibility. A forum for stakeholder stance explicitly incorporates multiple stakeholder interests and expectations rather than just shareholders as influences on organisational purposes and strategies. Here the argument is that the performance of an organisation should be measured in a more pluralistic way than just through the financial bottom line. Companies in this category might retain uneconomic units to preserve jobs, avoid manufacturing or selling ‘anti-social’ products and be prepared to bear reductions in profitability for the social good. Some financial service organisations have also chosen to offer socially responsible investment ‘products’ to investors. These include only holdings in organisations that meet high standards of social responsibility in their activities.

(i) Combining the role of CEO and Board Chairman increases the workload of the individual making him or her less efficient.
(ii) The individual may become too powerful and overbearing on other members of the board, thereby dictating the pace of activities.
(iii)Conflict of interest situations are likely to arise where the CEO can easily force through his executive decisions at the board level though they may not be in the best interest of the organization.
(iv) Decisions taken by the board may not be based on well-deliberated opinions and as a result, may not be the best under some circumstances.

• Provide continuity for the organization by setting up a corporation or legal existence, and to represent the organization’s point of view through interpretation of its products and services, and advocacy for them
• Select and appoint a chief executive to whom responsibility for the administration of the organization is delegated, including: to review and evaluate his/her performance regularly on the basis of a specific job description, including executive relations with the board, leadership in the organization, in product/service/program planning and implementation, and in management of the organization and its personnel and to offer administrative guidance and determine whether to retain or dismiss the executive.
• Govern the organization by broad policies and objectives, formulated and agreed upon by the chief executive and employees, including to assign priorities and ensure the organization’s capacity to carry out products/services/programs by continually reviewing its work.
• Acquire sufficient resources for the organization’s operations and to finance the products/services/programs adequately.
• Account to the shareholders (in the case of a for-profit) or public (in the case of a non-profit) for the products and services of the organization and expenditures of its funds, including: to provide for fiscal accountability, approve the budget, and formulate policies related to contracts from public or private resources and to accept responsibility for all conditions and policies attached to new, innovative, or experimental products/services/programs.

(i) In the first situation, the fundamental principle of integrity was violated. Accountants are required to act with integrity (honesty and truthfulness) while they are performing their duties. By allowing customs official to undervalue the imports, the accountant’s behavior which can be described as bribery of an official and cheating of the state pointed to his dishonesty.
(ii) The second situation was an issue of confidentiality. Any information that is withheld from the public during a bidding process is supposed to be kept as a secret. Revealing this information to anyone who is not supposed to have it violates the fundamental principle of confidentiality.
(iii) The CEO’s refusal to disclose information relating the court suit violates the principle of disclosure. Governance regulations and codes require that organisations make disclosures about the board, internal control reviews, going concern status and relations with stakeholders.

Roles of a corporate parent
A corporate parent plays three value creating roles in managing its business units.

• Envisioning corporate intent
  This is the process of creating a clear vision of corporate intent (what the organization wants to do). Creating a clear vision will help to avoid wasteful activities, provide a clear understanding of the organisation’s activities to external stakeholders and potential investors and help managers to know what is expected of them.
• Intervening to improve performance or developing business strategy
  In this role, the corporate parent has the responsibility to monitor and control the performance of its business units against respective plans, targets and intentions. It also has to develop the business units’ capabilities, provide training and coaching services as and when necessary and promote collaboration among the units in order to achieve synergy.
  In order to play these roles effectively, the corporate parent may adopt any of the following approaches:
• Portfolio management where they will create value by applying financial discipline. That is keeping their own costs low.
• Synergy management by focusing or paying attention to economies of scope through the sharing of competences and resources by the business units.
• Parental development by developing their own competences to improve their SBUs’ performance.

Most products, markets and even industries pass through clear stages of a life cycle. The position of a product can range from its introduction to the market, through a period of growth in sales and profits until its saturation, decline and eventual obsolescence. Ideally, a company needs a balanced range of products passing through different stages of the life cycle. The BCG Growth Share matrix is one of the methods used to analyse the balance of the product portfolio and illustrate the expected changes in the cash flow as products move through the various stages. The model is deliberately simplistic in that it focuses on cash flow and uses two variables, market growth and market share. As a generalisation, the cash characteristics of the products are defined by
the quadrants into which they fall:

The matrix identifies four types of product or service: dogs, cash cows, problem children (question marks) and stars, and suggests appropriate strategies for each.

• Cash cows are high share SBUs operating in a low growth industry and should be generating substantial cash inflows. The period of high growth in the market has ended, (the product life cycle is in the maturity or decline stage), and consequently
  the market is less attractive to new entrants and existing competitors. Cash cow products tend to generate more cash than is needed to sustain their market positions. These businesses should be a source of substantial amounts of cash that can be channeled to other areas.
• A star product has a high relative market share in a high growth industry. This type of product may be in a later stage of its product life cycle. A star may be only cash neutral despite its strong position, as considerable expenditure will be required to defend its position against competitors. Failure to support a star may lead to the product losing its leading market share position, slipping eastwards in the matrix and becoming a problem child. A star, however, represents the best future prospects for an organisation. As the growth rate for a star slows, it will drop vertically in the matrix into the cash cow quadrant and its cash characteristics will change.
• A problem child or question mark is a low market share product in a high growth industry. Substantial net cash input is required to maintain or increase market share in the face of strong competition. The planner must decide whether to market more intensively or get out of this market. The questions are whether this product can compete successfully with adequate support, and what that support will cost.
• Dogs are low share SBUs in low growth markets. They are often cash users and can perpetually absorb cash, because of the investment required to maintain position. An organisation with such a product can attempt to appeal to a specialised market, delete the product or harvest profits by cutting back support services to a minimum.
  Once the products are analysed using the model, a strategy for improving overall market share can be developed. Most organisations take cash from the cash cows to fund both development of future SBUs, and those problem children that have the potential to gain share to achieve star status.

Lease or buy are not purely a matter of calculations. The following are qualitative considerations in arriving at a decision:

• Effect on cash flow – the organisations liquidity at the time the decision is made may be important. If the business is suffering cash flow difficulties, lease payments may offer a smoother cash flow than one big lump sum.
• Cost of capital – the decision on whether to obtain use of the asset may be dependent upon appraisal method or cost of capital used. A decision not to invest taken using the company’s overall cost of capital may be reversed if a significantly lower cost of leasing is used in the cash flow.
• Running expense – lease or buy calculations normally assume that running costs are the same under each alternative. This may not be so. Expenses like maintenance and insurance may differ between the alternatives.
• Trade in value – the organisation will gain (uncertain) benefits of a trade-in value if it chooses the purchase option.
• Effect on reported profit – annual profits are reported on accrual basis, after the deduction of depreciation. The effect of the alternatives on reported profits should be considered since this could, if significant, affect dividend policy and valuation of shares.
• Alternative uses of funds – Lease or buy decision will not be taken in isolation. If the business has limited funds available, there may be better uses for those funds than obtaining the asset, even if the asset does yield net positive cash flows.

i. Economies of scale: High fixed costs often imply a high breakeven point, and a high breakeven point depends on a large volume of sales. If the market as a whole is not growing, new entrants into the industry would have to capture a large slice of the market from existing competitors. This is expensive. Thus, if significant scale economies are already enjoyed by existing firms, potential new entrants experience strong barrier to entry into the industry.
ii. Product differentiation: The degree to which existing firms have succeeded in differentiating their respective products or services from the competition determines how strong the barrier to entry for potential new entrants. Existing firms may have built up a good brand image and strong customer loyalty over a long period of time. A few firms may promote a large number of brands to crowd out the competition.
iii. Capital requirements: The amount of capital required to enter an industry determines the extent of difficulty new entrants face in their quest to enter the industry. When investment requirements are high, the barrier against new entrants will be strong, particularly when the investment would possibly be high-risk.
iv. Knowledge requirements: As well as high capital requirements, knowledge and know-how are also a barrier to entry. It is much more difficult to enter an industry which requires significant specialist knowledge, and skills, than an industry where no specialist skills are required.
v. Switching costs: Switching costs refer to the costs that a customer would have to incur by switching from one supplier’s products to another’s. Switching costs is a composite of three costs namely: time, money and convenience. Switching costs are usually higher for industries with greater extent of product differentiation. If switching costs are high, new entrants into the industry experience a strong barrier to entry since they have to invest heavily in differentiating their product and also creating awareness for its products so as to build its own loyal customers. The barrier is even stronger where the market is saturated.
vi. Access to distribution channels: Distribution channels carry a manufacturer’s products to the final consumer. New distribution channels are difficult to establish and existing distribution channels hard to gain access to. Existing distributors are usually reluctant to accept new products to market since they are unsure of their acceptability and patronage by the final consumers. Thus, usually potential new entrants face significant barriers to entry where access to distribution channels is difficult.
vii. Cost advantage of existing producers, independent of economies of scale: Sometimes existing producers in the industry enjoy significant cost advantages which are independent of economies of scale such as patent rights, experience and know-how effects, government subsidies and regulations and favoured access to raw materials. If these advantages are significant for existing producers it contributes to the strength of barrier to entry for new entrants. Existing producers find it easier to engage in price wars to ward of potential new entrants.

                                                                                                                                                                                      (Any 5 points)

A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization’s actions, objectives and policies.
Groupings of stakeholders
When identifying stakeholders it is not enough to focus on the formal structure of the organisation. It is necessary to have a look at informal and indirect relationships too. There are a number of ways of classifying stakeholders according to criteria based on how stakeholders relate to organisational activities. A useful model for this purpose is to visualize the stakeholder environment as a set of inner and outer circles. The different classifications of organisational stakeholders are:
1. Internal and external stakeholders
2. Narrow and wide stakeholders
3. Primary and secondary stakeholders
4. Active and passive stakeholders
5. Voluntary and involuntary stakeholders
6. Legitimate and illegitimate stakeholders
7. Financial and Non-financial stakeholders
1. Internal versus external stakeholders
Here, stakeholders are distinguished depending on whether they are part of the organisation – i.e. have a formal working relationship with the organisation – or are external to the organisation. Internal stakeholders include employees, management and board of directors, and possibly trade unions. External stakeholders include customers, competitors and suppliers. It could also include all other groups which do not form part of the internal organisation’s structure.
2. Narrow versus wide stakeholders
This classification describes the degree to which the stakeholder group is affected by the activities of the organisation.
Narrow stakeholders are used to describe stakeholders who are most affected or who are most dependent on organisational output. Examples of such stakeholders include shareholders, employees, management, customers and suppliers.
Wide stakeholders, on the other hand, refer to those who are less affected or dependent on the organisation’s output. This category includes government and its agencies, the wider community and non-dependent customers.
3. Primary versus secondary stakeholders
This classification distinguishes stakeholders based on the extent of influence of the organisation on the stakeholder and vice versa.
Primary stakeholders refer to stakeholders that have a direct influence on the company and without whom it would be difficult to operate. They are fundamental to the company’s profitability and health. The government and its agencies, shareholders, board of directors, management and other employees as well as customers fall into this category.
Secondary stakeholders, in contrast, are those who have a limited direct influence on the organisation and without whom the company would survive – though with little success. They are generally described as groups that the company depend on for success. Secondary stakeholders describe relationships that arise because of specialised interests. Examples of secondary stakeholders include communities where companies are located, the media, lobbyists, competitors, etc.
4. Active versus passive stakeholders
This classification distinguishes between those that seek to participate in organisational activity and those that do not.
Active stakeholders refer to those that wish to participate in the activities of the organisation. It includes management and employees, but may also include regulators, environmental pressure groups and suppliers.
Passive stakeholders describe those that do not wish to participate may include shareholders, local communities, government and customers.
5. Voluntary versus involuntary stakeholders
This classification of stakeholders removes the element of choice associated with active and passive participation. It sub divides the active group into two elements.
Voluntary stakeholders refer to those stakeholders that choose to be involved in organisational decision making. It involves groups such as management, employees’ environmental group and active shareholders. These stakeholders can withdraw their interest in the short-term.
Involuntary stakeholders are those that do not choose to be involved in organisational decisions, but become involved for a variety of reasons. This could include regulators, key customers, suppliers, government, natural environment and local communities. They cannot withdraw in the short-term to medium-term.
6. Legitimate versus illegitimate stakeholders
This classification describes the degree to which the claim of the stakeholder is considered a valid claim. It can be a subjective classification with debate surrounding certain group’s claims, and can lead into the concept of whether stakeholders are recognised by the organisation or not.
Legitimate stakeholders are those who have an active economic relationship with an organisation, such as customers and suppliers, are called.
Illegitimate stakeholders are those without such a link where there is no case for taking their views into account when making decisions are called. Typical examples of such group are terrorist organisations.
7. Financial versus Non-financial stakeholders
Financial Stakeholder: They are those with a financial relationship with the organisation, in other words should financial problems occur to the organisation, then these stakeholders will suffer. Examples are shareholders and other investors, creditors and suppliers.
Non-Financial Stakeholders: They’re interested in how the organisation behaves and are often more powerful than the financial stakeholders due to the influence they have over it. Examples are Media, Activist groups and Regulators.