What is a stakeholder?
A stakeholder is any entity that has a vested interest in the company and can affect or be affected by the decisions and activities of the company. In simple terms, stakeholders have a ‘stake’ in the success or failure of the company. Stakeholders can be employees, management, customers, suppliers, investors, community, and even shareholders. For instance, shareholders are also stakeholders because the outcome of a company project or decision will impact its share prices and, thereby, its profits.
Types of stakeholders
Depending upon their placement, stakeholders of a company can be grouped into the two following categories:
1. Internal stakeholders
Internal stakeholders are those with a direct relationship with the company, like employment, ownership, or investment. Their interest stems from these direct ties. Common examples of internal stakeholders include employees, executives, and shareholders.
2. External stakeholders
External stakeholders are individuals or organisations that are affected by the actions of the company but do not have a direct relationship with the said company. This includes customers, suppliers, creditors, and the general public. While external stakeholders are located outside the company, they have an interest in the company because its decisions and projects affect them in some way.
Main differences between shareholders and stakeholders
Here’s a list of differences between shareholders and stakeholders to help clarify the stakeholder vs. shareholder debate further:
Aspect
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Shareholders
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Stakeholders
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Primary interest
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Focused on financial gains such as capital appreciation and dividends.
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Interested in a broader range of outcomes, including company success, job security, and quality of products/services.
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Priorities
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Prioritise profit maximisation and stock price increases.
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Prioritise sustainable growth, ethical practices, and overall business performance.
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Examples
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Investors or individuals who own shares in the company.
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Employees, customers, suppliers, vendors, government, and the community.
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Timeline
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Short-term focus—linked to the duration they hold shares.
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Long-term focus—concerned with sustained company performance and relationships.
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Ability to exit
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Can quickly exit by selling their shares.
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Cannot easily withdraw their involvement (e.g., employees, suppliers).
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Conflicting interests
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May support cost-cutting for higher profits, even at the expense of others.
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May oppose such actions if they harm employee welfare, product quality, or the environment.
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Who’s more important: Shareholders or stakeholders
Shareholders do not have the same level of control over a business as stakeholders. Whether internal or external, stakeholders play a crucial role in an organisation's structure, often having a significant influence on key decisions. Their impact can be so deeply embedded that they can sometimes determine the success or failure of business initiatives and projects.
- Shareholder theory
Shareholder theory presents a powerful perspective on business's role in society, asserting that managers' sole duty is to maximize shareholder wealth. By leveraging corporate resources to generate profits, they fulfill this responsibility. As long as these actions comply with legal and ethical standards, they are seen as beneficial to society. In this view, corporate social responsibility is strictly defined in terms of economic profit-making.
- Stakeholder theory
Stakeholder theory highlights the interconnected nature of businesses and the various groups they impact, including customers, suppliers, employees, investors, and communities. It emphasises that companies should create value for all stakeholders, not just shareholders. This perspective views capitalism as a system where businesses thrive by considering the needs of everyone involved, fostering long-term success and sustainable growth.
Conclusion
From the above stakeholder vs. shareholder debate, it's clear that shareholders are always stakeholders, but stakeholders may or may not be shareholders. While both shareholders and stakeholders play a crucial role in a company, each operates with a different purpose. Differences between a shareholder and a stakeholder primarily stem from the former’s focus on profits and the latter’s focus on a range of interests—from financial to social. Shareholders are more focused on short-term actions that impact share prices, while stakeholders are focused on the actions of the company with long-term impact. According to stakeholder theory, prioritising the interests of all stakeholders can help companies secure long-term success across different metrics.
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