stakeholder definition in business

All stakeholders are bound to a company by some type of vested interest, usually for the long term and for reasons of need. A shareholder has a financial interest, but a shareholder can also sell their stock in the company; they do not necessarily have a long-term need for the company and can usually get out at any time.

Are a shareholder and a stakeholder the same thing?

The terms shareholder and stakeholder are sometimes used interchangeably, but they're actually quite different. A shareholder is someone who owns stock in your company, while a stakeholder is someone who is impacted by (or has a “stake” in) a project you're working on.

As a result, companies might place them at a lower priority for consideration than primary stakeholders. The higher the influence of the stakeholders, the greater the company’s dependence on them. When they own a majority of the shares, it becomes increasingly difficult to make decisions without being influenced by the interests of the shareholders. When they own a majority of the shares, it becomes increasingly difficult to make decisions without being influenced by the shareholders’ wishes.

What Is a Stakeholder? Definitions, Types & Examples

The concept of a stakeholder does have moral and ethical implications for business governance. If a business only has a duty to its shareholders, then the business may have no moral obligations to any other person, organization or society. In a corporate context, the term stakeholder was introduced in the 1960s by the Stanford Research Institute as a generalization of the terms stockholder or shareholder. SRI’s work was focused on firms, and the stakeholder concept was focused on the firm’s most closely related actors. From the mid-1980s, the meaning of the concept was stretched through the development of its social and political dimensions, making it a key concept for governance in general. Owners – they are concerned about the business’ profits, among other things. Conducting a stakeholder analysis can be strategically valuable when kicking off any type of complex company undertaking.

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You’ll also need to begin estimating their level of involvement and influence in your project to prepare stakeholder communication strategies and prioritize them. A shareholder, though, is someone who has invested in a corporation. That corporation might initiate projects in that the shareholder is also a stakeholder. Put simply, shareholders are also stakeholders, but stakeholders are not always shareholders. That’s because a shareholder owns part of a public company through the purchase of stocks. A stakeholder has an interest in the corporation’s overall performance, not stock performance.

Stakeholder definition

Shareholders & owners are probably the most obvious stakeholders. Shareholders and owners contribute capital, and sometimes labor, to the business. A stakeholder is a person or group who has a vested interest in a business and can impact or be impacted by the company’s operations. This person had an interest in the outcome of the bet or situation.

Full BioPete Rathburn is a freelance writer, copy editor, and fact-checker with expertise in economics and personal finance. Get high quality product management content delivered straight to your inbox every other week. Start by brainstorming with your team a list of all possible stakeholders for your project. Of course, youu can reduce this list later, but you stakeholder definition in business don’t want to miss a potentially pivotal stakeholder at this early stage. Watch this video for an in-depth explanation of stakeholder analysis and to learn how to efficiently conduct a stakeholder analysis. Sustainable value for wider society, rather than merely generating profits for shareholders, has a firmer footing now than at any time since the 1960s.

stakeholder

A stakeholder is any group or individual affected by a business, either directly or indirectly. His goal was to create a broader view of strategic management that went beyond traditional economic theory. Depending on the type of stakeholder, they may not necessarily “do” anything other than engage with the business in the way that best suits their needs. However, some stakeholders are more actively involved with the business, either directly or indirectly.

  • Stakeholders can also misuse their power by pressurizing the teams and business owners to obey their decisions.
  • A common problem that arises for companies with numerous stakeholders is that the various stakeholder interests may not align.
  • For companies, high salaries create high operating costs, reducing company profits.
  • They’re influenced by the organization’s work but are not employees of the organization.
  • The local community – the company provides jobs, if there are factories there may be unpleasant consequences , it may want to expand onto green-designated land.
  • Through labor unions, companies can access the required qualified workforce more easily.

Performing due diligence means thoroughly checking the financials of a potential financial decision. Public relations is the art of managing how information about an individual or company is disseminated to the public. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Investopedia does not include all offers available in the marketplace. Shareholders are only one type of stakeholder that firms need to be cognizant of. Our editors will review what you’ve submitted and determine whether to revise the article.

Examples of Stakeholders

By contrast, external stakeholders include suppliers, governments, customers, trade unions, and creditors. These are people and organizations that are outside of the business. In the last decades of the 20th century, the word “stakeholder” became more commonly used to mean a person or organization that has a legitimate interest in a project or entity.

stakeholder definition in business

For this reason, they may intervene in the business using their decision-making power. For example, they can replace underperforming directors with other ones, which is more likely to improve performance. https://business-accounting.net/ When buying company shares on the stock exchange, they face the risk of the company’s share price falling. As a result, they make no profit or even find it difficult to break even.

They are willing to lend money if the company can pay the debt plus interest on time. If the company fails to pay, creditors might file for bankruptcy against the company in court. So, the company must have sufficient cash flow to pay debts. They are interested in its operating and financial performance because it affects the dividends and capital gains.

stakeholder definition in business

Examples include employees, management, shareholders, customers, suppliers, governments, creditors, local communities, and special interest groups. They may be affected by the company’s operating activities, such as local communities. They may be interested in the company’s profits, such as employees, management, and shareholders. Or, they have a claim on the assets and income of the company like creditors. Examples of important stakeholders for a business include its shareholders, customers, suppliers, and employees.

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