Shareholder vs Stakeholder: What’s the Difference?
For example, employees want the company to remain financially stable because they rely on it for their income. Civic leaders want the company to remain an employer of the area’s residents and to contribute to tax revenue. These two divergent paths are known as the shareholder and stakeholder theories. A sole proprietorship is an unincorporated business with a single owner who pays personal income tax on profits earned from the business.
Employees and board members are internal stakeholders because they have a direct relationship with the company. Distributors and community members, however, are examples of external stakeholders. On the other hand, stakeholders focus on longevity and better quality of service. For example, the company’s employees may be interested in better salaries and wages, rather than in higher profitability. The suppliers may be interested in timely payments for goods delivered to the company, as well as better rates for their products and services. The customers will be interested in receiving better customer service, as well as buying high-quality products.
However, during a presentation, you might get some questions thrown at you that will demand a deeper look. We’ve written about what a stakeholder is before, and the definition still stands. A stakeholder can be either an individual, a group or an organization impacted by the outcome of a project. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
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Because stakeholders are typically more concerned with a company’s long-term financial stability, they may have different priorities than shareholders, who may be interested only as long as they own stock. Now that you know the difference, how about a bridge that connects the two? Whether you’re managing stakeholders or shareholders, ProjectManager has you covered. Our project management software helps leaders manage projects online with their team, and keeps stakeholders and shareholders informed along the way. If the company’s share price increases, the shareholder’s value increases, while if the company performs poorly and its stock price declines, then the shareholder’s value decreases. Shareholders would prefer the company’s management to take actions that increase the share price and dividends and improve their financial position.
Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. Our editorial team does not receive direct compensation from our advertisers. Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. A shareholder is any party—whether an individual, a company, or an institution—that has shares in a publicly owned company. Stakeholder is a broader category that refers to all parties with an interest in a company’s success. Thus, shareholders are always stakeholders, but stakeholders are not always shareholders.
A stakeholder is a party that has an interest in the company’s success or failure. A stakeholder can affect or be affected by the company’s policies and objectives. Internal stakeholders have a direct relationship with the company either through employment, ownership, or investment.
Also, shareholders would want the company to focus on expansion, acquisitions, mergers, and other activities that increase the company’s profitability and overall financial health. In the case of shareholders, they are always stakeholders in an organisation or business, but stakeholders are not always shareholders. The key difference between the two comes down to the fact that a shareholder owns a part of a public company through stock.
A shareholder is any party, either an individual, company, or institution, that owns at least one share of a company and, therefore, has a financial interest in its profitability. Shareholders may be individual investors or large corporations who hope to exercise a vote in the management of a company. For instance, a supplier might rely on another business to buy its products. If the company buying those products struggles, it may stop placing orders with the supplier. This would likely impact the long-term financial performance of the supplier negatively.
Shareholders can sell their stock and purchase different shares, but stakeholders cannot easily steer their way out of the organisation’s influence, as they have a longer-term relationship with the company. For example, if a company performs poorly financially, the vendors, employees and customers or clients will be impacted. But for a shareholder, they can sell their stocks and leave before the impact affects them too severely. In this scenario, it is the stakeholders who do not have many options to leave. But even if they leave or are forced to leave (such as employees losing their jobs) they are still impacted and cannot negate the effects the organisation has on them.
So stakeholders often have a more complex relationship with the company than shareholders. The community or communities in which the company operates can also be stakeholders. For instance, if a company builds a new plant for manufacturing or refining, it might have environmental impacts on the surrounding area.
Employees, suppliers, and vendors often look to maintain their relationship with the company for years. Stability is often a plus for stakeholders, who may be less concerned with day-to-day developments. They may be happy as long as they can maintain their existing social or economic agreements with the company. In contrast, a shareholder is a person or institution that owns one or more shares of stock in a company. For example, individuals often purchase shares of stock as part of their retirement strategy, hoping to enjoy long-term share appreciation. The first thing to know is that shareholders are always stakeholders because their success depends on the company’s success.
Final word on stakeholders and shareholders
A stakeholder is anyone who is impacted by a company or organization’s decisions, regardless of whether they have ownership in that company. Shareholders are those who have partial ownership of a company because they have bought stock in it. All shareholders are stakeholders, but not all stakeholders are shareholders. Under this theory, prioritizing the needs and interests of stakeholders over shareholders is more likely to lead to long-term success, both for the business and for the communities that it is a part of. This stakeholder mindset is, in turn, likely to create long-term value for both shareholders and stakeholders.
- Shareholders want the company’s executives to carry out activities that have a positive effect on stock prices and the value of dividends distributed to shareholders.
- Stakeholder theory, in contrast, is the idea that stakeholders should have priority and that the relationship between stakeholders and the company is more complex and nuanced.
- Stakeholders have broader motivations beyond simply the financial success of the business that they’re connected with.
- These two divergent paths are known as the shareholder and stakeholder theories.
For example, if the company’s operations are terminated, employees will lose their jobs, and this means that they will no longer receive regular paychecks to support their families. Although stakeholders do not have a direct relationship with the company, they may be affected by the company’s actions or performance. The money that is invested in a company by shareholders can be withdrawn for a profit.
Are Shareholders or Stakeholders More Important?
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The relationship between the stakeholders and the company is bound by a series of factors that make them reliant on each other. If the company is facing a decline in performance, it poses a serious problem for all the stakeholders involved. Shareholders and stakeholders can often have overlapping priorities, but they aren’t the same. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. The terms stakeholder and shareholder are sometimes incorrectly used interchangeably. The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Introduced by the economist Milton Friedman in the 1960s, the shareholder theory of capitalism claims that corporations’ primary focus is to create wealth for its shareholders. This, however, doesn’t mean that companies can do as they please because their practices are still subject to applicable laws. Although shareholders are owners of the company, they are not liable for the company’s debts or other arising financial obligations. The company’s creditors cannot hold the shareholders liable for any debts that it owes them. However, in privately-held companies, sole proprietorships, and partnerships, the creditors have a right to demand payments and auction the properties of the owners of these entities.
But it’s most likely that you’ll proceed with a hybrid, as both theories serve different aspects of the business. Although their primary motivations aren’t exactly aligned, the company’s success or failure affects both groups one way or the other. Stakeholders are usually in the game for the long haul and have the most desire for a company to succeed, not just in terms of stock performance. So if you’re in the manufacturing business, for example, you have to consider the needs of neighboring communities — specifically, how your operations affect their livelihood and quality of life. In this guide, we’ll uncover those differences and then discuss what can be done to counter negative stakeholder influence on your projects. For example, if a company is involved in business activities that take away the green space within a community, the company must create programs that protect the social welfare of the community and the ecosystem.
But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. Stakeholder Theory is a recent theory of business that argues against the separation of economics and ethics.
It states that short-term profits—prioritizing shareholders—should not be the primary objective of a business. ProjectManager has project reports for a variety of different project metrics, from variance to task progress. All these reports can be filtered instantly, so you’re always prepared to make that deep dive into the data when it’s requested. Stakeholders and shareholders will love the transparency ProjectManager gives them into the project. Mostly, stakeholders and shareholders alike are more interested in the big picture.
It can even be invested in other organizations, some of which could be in competition with the other. Therefore, the shareholder is an owner of the company, but not necessarily with the company’s interests first. Try ProjectManager and get dashboards and reporting tools that track everything stakeholders and shareholders care about. Another important distinction — only companies that issue shares have shareholders, while every organization, big or small, no matter the industry they operate in, have stakeholders.