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Stakeholder definition

stakeholder definition

A stakeholder is an individual, a group or an organisation with an interest in a company. Stakeholders are typically a company’s investors, employees, customers and suppliers.

In this article, we will learn what stakeholder means and understand the difference between stakeholders and shareholders.

What is a stakeholder?

A company has different individuals and groups that hold an interest in its decisions and performance. These people are referred to as stakeholders.

Investors, employees, customers and suppliers are primary stakeholders. 

The growing importance of environment, social and governance (ESG) standards and increasing attention on corporate social responsibility (CSR) means that stakeholders can be governments, academics, trade associations and communities.

Most companies undertake stakeholder engagement activities to create opportunities for dialogue with its stakeholders, keeping interest parties informed about business decisions. There are different types of stakeholders in a business, which may have different goals. Companies are subject to scrutiny by various stakeholders and a business may find it difficult to please all concerned parties due to their contrasting goals. 

Types of stakeholders

Stakeholders in business can be internal or external. Internal stakeholders are individuals who have direct interest in the company in the form of investment, employment or ownership. External stakeholders are people who are not employees or investors in a company but are somehow affected by the organisation’s decisions and actions. Suppliers, lenders, governments and communities are common external stakeholders examples.

Types of stakeholders

  • Customers: Consumers of a company’s products are affected by the quality and price of goods and services it produces. For example, a pharmaceutical company selling critically important drugs will adversely affect its consumers if the drug is below par.

  • Employees: Decisions made by a company regarding staff compensation and benefits, working conditions and layoffs will directly affect employees’ lives.

  • Investors: Individuals or groups invested in a company will see the value of their investment in the business rise or fall depending on the company's performance. Similarly, a bank that has lent money to a company will hold an interest in the organisation’s business performance expectant of safe return of their loan amount and interest earned.

  • Suppliers and vendors: Suppliers sell goods or services to a company and rely on it for revenue generation.

  • Communities: Local communities are affected when an enterprise enters or leaves their locality. For example, if Apple (AAPL) sets up a new factory in Vietnam, the local community will get an earnings boost. 

  • Governments: Taxes collected from business form a significant part of a government’s revenue. Businesses also contribute to employment, payroll taxes and a nation’s overall gross domestic product (GDP).

Stakeholders vs shareholders

A shareholder is an individual or company that owns shares in a company. 

Stakeholders are interested in a company for various reasons, ranging from financial interest, governance and environmental goals, among others. Meanwhile, shareholders are mainly interested in financial rewards, which come in the form of stock price appreciation and dividends.

If a company is facing a difficult operating environment in the form of rising raw material cost or increased competition or disrupted supply chains, a shareholder can quickly sell their company stock and give up their financial interest in the company. Whereas, an employee of a company may not give up on their company so easily.

 

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