The 10 different types of stakeholders
1. Suppliers
Suppliers are external, secondary, and indirect stakeholders who provide goods or services to a business. While they aim to earn revenue, they also ensure their products meet quality and safety standards, as these can affect your company’s operations and reputation.
2. Owners
Owners are internal, primary, and direct stakeholders who contribute capital and hold decision-making power. They have a vested interest in the company's success, profit generation, and strategic direction. Their equity entitles them to a share in profits and key business influence.
3. Investors
Investors, whether internal or external, are primary and direct stakeholders. They fund business activities, often influencing major decisions. Beyond financial support, investors can offer guidance, valuable connections, motivation, and help enhance a company’s public image and credibility in the market.
4. Creditors
Creditors are external, secondary, and indirect stakeholders who lend money or extend credit to businesses. They have financial claims and expect timely repayments. In insolvency, creditors are prioritised before shareholders, making them crucial in assessing a company’s financial stability and risk.
5. Communities
Communities are external, secondary, and indirect stakeholders. They are affected by business operations through job creation, environmental impact, health, and local development. A business must act responsibly, as mutual benefits between the company and the surrounding community drive sustainable relationships.
6. Trade unions
Trade unions are external, secondary, and indirect stakeholders representing employees’ rights. They work through collective bargaining to improve wages, benefits, and working conditions. Businesses must engage with trade unions to ensure fair treatment, workforce satisfaction, and compliance with labour regulations.
7. Employees
Employees are internal, primary, and direct stakeholders crucial to daily operations. They support company goals through their roles, expecting fair wages, job security, and career development. As the company grows, employee engagement and satisfaction significantly impact performance and retention.
8. Government agencies
Government agencies are external, secondary, and indirect stakeholders. They collect taxes and regulate business practices through laws like SOX. These bodies ensure companies operate fairly and transparently while complying with legal, fiscal, and environmental standards essential to national interest.
9. Customers
Customers are external, primary, and direct stakeholders who purchase goods or services. Their expectations of quality, price, and service influence business success. Meeting customer needs and ensuring satisfaction is essential for loyalty, market share, and long-term profitability in any industry.
10. Media
Media is an external, secondary, and indirect stakeholder that helps shape public perception. Through press releases, interviews, and advertising, media platforms influence brand reputation. Maintaining strong media relations enables businesses to manage their image and communicate effectively with the public.
Examples of stakeholders
Stakeholders are individuals or groups who have a vested interest in an organisation or project. They can be categorised based on their relationship and expectations:
- Customers: Expect high-quality products or services that meet their needs and preferences.
- Employees: Seek meaningful work, career growth, and a positive work environment.
- Owners: Are responsible for the organisation's overall direction and financial performance.
- Investors: Seek financial returns and often have a say in major decisions.
- Creditors: Lend money to the organization and expect timely repayment with interest.
- Suppliers: Provide materials and products and are interested in the organisation's long-term success.
- Communities: Value the economic benefits, social impact, and environmental sustainability of the organisation.
- Governments: Collect taxes and regulate the organisation's operations.
What is the concept of stakeholder capitalism?
In the corporate world, “stakeholder capitalism” is an important concept. It states that organisations prioritise the interests and well-being of all their stakeholders, not just shareholders. This approach contrasts with the traditional shareholder-centric model, which focuses primarily on maximising profits for shareholders.
In stakeholder capitalism, the success of an organisation is measured not only by its financial performance but also by its contributions to the well-being of its:
- Employees
- Customers
- Suppliers
- Communities
- Environment
Why is stakeholder capitalism important for investors?
By picking the companies following the concept of stakeholder capitalism, investors can earn better returns and achieve their long-term value creation objectives. Let us see why:
1. Sustainable business practices
2. Customer loyalty and brand strength
- Stakeholder-focused companies prioritise meeting the needs of their customers.
- By doing so, they often build:
- Strong brand reputations
and
- Usually, such companies gain from:
- Repeat business
- Positive word-of-mouth referrals
- Increased market share
- Customer loyalty
3. Employee engagement and innovation
- Valuing employees as stakeholders leads to higher levels of:
- Engagement
- Satisfaction, and
- Retention
- Often, engaged employees contribute innovative ideas and solutions.
- This boosts competitiveness and helps companies achieve long-term growth.
4. Responsible financial management
- Companies practising stakeholder capitalism prioritise responsible financial management.
- They consider the interests of all stakeholders, including investors.
- Such companies are often involved in:
- Transparent reporting
- Prudent risk management
- Long-term strategic planning
- High levels of fiscal responsibility and accountability
- Often, these companies instil confidence among investors and easily attract business capital.
Also, read about the different types of shares issued by the companies to raise funds.
Difference Between Stakeholder and Shareholder
People often use the terms ‘stakeholders’ and ‘shareholders’ interchangeably. However, both differ in scope and represent distinct groups involved with a company. Let us understand how:
Feature
|
Shareholders
|
Stakeholders
|
Ownership
|
Direct ownership of shares
|
Indirect or no direct ownership
|
Voting Rights
|
Have voting rights in company decisions
|
Generally do not have voting rights
|
Primary Interest
|
Maximizing financial returns
|
Diverse interests, including financial, social, environmental, etc.
|
Focus
|
Financial performance metrics (stock price, DPS, EPS)
|
Broader range of issues, including social responsibility, ethical conduct, and long-term sustainability
|
Influence
|
Direct influence through voting rights and shareholder activism
|
Indirect influence through activism, consumer behavior, regulatory pressure, and community support
|
Examples
|
Individual investors, institutional investors, mutual funds
|
Employees, customers, suppliers, creditors, government, community, and the environment
|
Different between internal vs external stakeholders
Based on several studies, we can divide stakeholders into internal and external categories:
Parameters
|
Internal stakeholders
|
External stakeholders
|
Meaning
|
- They are directly involved in the organisation's operations
- Internal stakeholders have a direct impact on—and are directly affected by—the company’s performance and decisions
|
- They are groups or individuals outside the organisation but are affected by its activities
- External stakeholders influence and are influenced by the company's actions
- However, they are not directly involved in a company’s day-to-day operations
|
Example
|
- Employees
- Managers and executives
- Owners or promoters
- Shareholders
|
- Customers
- Suppliers and vendors
- Investors
- Creditors
- Government
- Regulatory bodies
|
Conclusion
Stakeholders in a company include individuals and groups affected by its decisions and financial performance, such as employees, customers, investors, and regulators.
In stakeholder capitalism, businesses consider the interests of all affected parties, not just shareholders. This approach encourages sustainable practices and long-term value creation.
Do you wish to expand your market knowledge? Learn about share certificates today.
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