Stakeholder
In this article, Anant JAIN (ESSEC Business School, Master in Management, 2019-2022) explains the term “Stakeholder” used in management.
Introduction
As defined in a 1963 internal memorandum at the Stanford Research Institute, “In a company, a stakeholder is a member of groups without whose support the organization would cease to exist”. Edward Freeman later refined and promoted the idea of stakeholder in the 1980s.
In other words, a stakeholder is a person, a group, or an organization who is affected by a company, project, or business venture’s outcome. A stakeholder has an interest in a firm and can influence or be influenced by it.
Stakeholders are crucial because their decisions can have a favorable or negative impact on the project. Diverse stakeholders have different interests, and firms frequently have to make trade-offs in order to please every type of stakeholder.
Investors, employees, customers, and suppliers are the major stakeholders of a typical company. However, with the rise of corporate social responsibility, the notion of stakeholder has been expanded to encompass communities, governments, and trade groups.
Types Of Stakeholders
Stakeholders can be classified on the basis of their engagement and involvement with a company and its business. They can be classified as internal stakeholders and external stakeholders.
Internal Stakeholders
Internal stakeholders, also known as Primary stakeholders, are those who are engaged in economic and financial transactions with the company. Internal stakeholders are those who have a direct interest in the company via employment, ownership, or investment. Employees, owners, the board of directors, project managers, investors, and suppliers are just a few examples.
External Stakeholders
External stakeholders are those who are not engaged in direct economic or financial return with the company and are indirectly impacted by the company and its business activities. They do not actively work for a firm, but they are influenced by its activities and its’ consequences in some way. The government, the environment, society, communities, the general public, and the media are just a few examples.
List Of Stakeholders
As previously stated, there are several categories of stakeholders. There are internal and external stakeholders, and every stakeholder falls under either of these categories. Every type of stakeholder group is unique and their expectations are different. Therefore, some stakeholders will be simpler to handle than others. Please find a list of the most frequent stakeholders, as well as their specific needs and participation with a company, below:
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Customers
Stake: Product/service quality and value
Type of stakeholder: Internal
These stakeholders desire the project’s product or service, and they want it to be of high quality and provide value for them. For instance, a customer staying at a hotel would expect his or her stay to be convenient and relaxing. -
Employees
Stake: Employment income and safety
Type of stakeholder: Internal
Employees have a direct investment in the company since they earn a living wage and receive additional perks (both financial and non-monetary). Employees may also have health and safety interest, depending on the nature of the company. This is particularly true for companies in the transportation, mining, oil & gas, and construction sector. -
Investors
Stake: Financial returns
Type of stakeholder: Internal
Shareholders and debtholders are both types of investors. Investors contribute money into the company with the expectation of getting a particular return on their investment. The idea of shareholder value is often a source of priority for investors. All shareholders are stakeholders by definition, however, the reverse is not true. -
Suppliers & Vendors
Stake: Revenues and safety
Type of stakeholder: External
Suppliers and vendors offer goods and/or services to a company and rely on it for ongoing revenue and profits. Suppliers’ health and safety are at risk in many sectors, as they may be directly involved in the company’s activities. -
Communities
Stake: Health, safety, economic development
Type of stakeholder: External
Communities have an important role in the success of significant companies that are based there. Employment opportunity, economic development, health, and safety are all factors that have an influence on them. When a large company moves into or out of a small town, it has an immediate and considerable influence on employment, income, and expenditure. -
Governments
Stake: Taxes and GDP
Type of stakeholder: External
Governments may also be considered a big shareholder in a company since they collect taxes from the company (corporate income taxes), all the people it employs (payroll taxes), and other expenses the company incurs (sales taxes). Furthermore, companies contribute to the total Gross Domestic Product (GDP), which benefits the governments and as a result, the economy as well. -
Problems With Stakeholders
Stakeholders are critical for several reasons. Internal stakeholders are crucial since the company’s operations rely on their ability to collaborate to achieve the company’s objectives. External stakeholders, on the other hand, might have an indirect impact on the company. Customers, for example, can alter their purchasing patterns, suppliers can alter their production and distribution processes, and governments can alter their laws and regulations.
The various stakeholder interests may not align, which is a significant difficulty for companies with many stakeholders. In actuality, the interests of different stakeholders might be completely poles apart from each other. For example, from the perspective of its shareholders, a company’s principal purpose is to maximize earnings and increase shareholder value. Because labor expenses are inescapable for most businesses, a company may try to reduce them as low as possible as therefore, affecting its credibility with its employees. Ultimately, maintaining internal and external stakeholder relationships and their expectations is critical for a company’s long-term success.
Stakeholders VS Shareholders
Shareholders and stakeholders are not the same thing. A stakeholder might be affected by or invested in the project. A stakeholder can be a shareholder. However, stakeholders can also be employees, bondholders, consumers, suppliers, and vendors.
A shareholder can be a stakeholder. A stakeholder is someone who has interest in a company and may affect or be affected by the company’s actions. A shareholder, on the other hand, is someone who has made a financial investment in a company. Because shareholders are also stakeholders, that company may begin initiatives in which the shareholder is also a stakeholder. However, stakeholders are not always shareholders. Because a shareholder buys stock in a public company, he or she owns a part of the company and therefore is concerned with the performance of the stock. On the other hand, a stakeholder has an interest in the company’s overall performance and not just the stock performance and financial returns.
Shareholders are an essential form of stakeholder, but they are far from the only ones. Employees, consumers, suppliers, governments, and the general public are examples of other stakeholders. In recent years, there has been a movement toward thinking about who makes up a company’s stakeholders in a broader sense.
Related Posts On The SimTrade Blog
▶ Anant JAIN Analysis Of “The Social Responsibility Of Business Is To Create Value For Stakeholders” Article By Freeman And Elms
▶ Anant JAIN Shareholder
▶ Anant JAIN Mission Statement
▶ Anant JAIN Writing A Mission Statement
Useful Resources
Freeman E., H. Elms, 2018, The Social Responsibility of Business Is to Create Value for Stakeholders, MIT Sloan Management Review, 17/12/2020.
Jack Welch (2009) Welch condemns share price focus Financial Times.
About the author
The article was written in August 2024 by Anant JAIN (ESSEC Business School, Master in Management, 2019-2022).