Definition
A stakeholder in a company is anyone that can be affected by a company’s actions and decisions, including employees, customers, suppliers and even the community. A shareholder, on the other hand, owns part of the company through shares and their primary concern is the company’s profitability as it directly impacts their financial return. Therefore, while a shareholder is a stakeholder, not all stakeholders are shareholders.
Key Takeaways
- Stakeholders refer to anyone who has an interest or is affected by a corporation. This includes employees, suppliers, creditors, and even the community. On the other hand, shareholders or stockholders are individuals or institutions that legally own one or more shares of a company’s stock, thereby having a financial stake.
- Stakeholders have a broader interest in a company’s activities. Their concern covers a wide spectrum that goes beyond financial considerations, ranging from the environment, corporate culture, to ethical operations. In contrast, shareholders’ interests are more focused on the company’s profitability and receiving higher returns on their investment.
- The decision-making process of a company takes into consideration both stakeholders and shareholders. However, traditional capitalist structures tend to prioritize shareholder value, which could cause conflict with stakeholders who have different objectives.
Importance
The distinction between a stakeholder and a shareholder is crucial in finance as it relates to the individuals or entities interested in a company. A shareholder is a person who owns share(s) in a company, thereby having a financial interest and voting rights.
They primarily care about the company’s profitability as their dividends and share value depends on the financial performance of the organization. On the other hand, a stakeholder, which can be an individual or a group like employees, customers, suppliers, community, or even government, has a direct or indirect interest in the company based on various factors that may not just be financial.
Stakeholders’ interests may encompass social and environmental impact, employee welfare, community development, etc. Understanding these differences is fundamental to effective corporate governance and decision-making, as the company must address the needs of both while ensuring business sustainability and growth.
Explanation
The term “stakeholder” in finance is broadly used to refer to any individual or group that has an interest in the success of a business. This can include but is not limited to employees, consumers, suppliers, communities and shareholders. The purpose of identifying stakeholders is to understand the impacts of business decisions beyond financial performance.
Stakeholders may influence or be influenced by the organization’s actions, objectives, and policies. Some direct stakeholders are economic or financial stakeholders who have a direct economic interest in the business, such as investors and employees, while others like local communities, may not have a financial stake but are affected by the activities of the business in different ways. On the other hand, a shareholder, is a person, company, or institution that owns at least one share of a company’s stock, which is known as equity.
Because shareholders are a company’s owners, they reap the benefits of the company’s successes in the form of increased stock valuation. If the company makes a profit, shareholders may also receive dividend payments. Shareholders generally have the right to vote on major company decisions, including the election of company directors.
Although shareholders are a subset of stakeholders, their primary interest is typically the company’s profitability, as this drives the returns on their investment.
Examples of Stakeholder vs Shareholder
Apple Inc: As one of the prominent companies, Apple Inc. has a diverse group of stakeholders beyond its shareholders. Stakeholders include employees, customers, suppliers, and even governments who benefit from its tax payments. In 2019, Apple announced its multiple commitments towards stakeholders. These included a $350 billion contribution to the US economy over five years, a commitment to become fully carbon neutral by 2030, and education initiatives. These activities all prioritized the interests of stakeholders over just focusing on shareholder returns.
CVS Health: When CVS Health decided to stop selling tobacco products in 2014, this decision can be seen as prioritizing stakeholders over shareholders. This move may have caused short-term financial losses and upset shareholders, but CVS made this decision to better align with the interests of a vital stakeholder group, its customers. They aimed to promote the health of their customers, keeping the long term vision of the company’s responsibility as a health care provider.
Unilever: Known for its sustainable living plan, Unilever is an example where the company takes into account both its shareholders and stakeholders. The plan includes reducing the company’s environmental impact and improving health and well-being, proving its commitment to stakeholders. While these initiatives may require large investments and might not yield immediate profit growth, this stakeholder-focused strategy actually increased Unilever’s overall business performance and boosted its reputation, thereby meeting shareholder expectations by increasing the stock value in the long run.
FAQs on Stakeholder vs Shareholder
1. What is a Stakeholder?
A stakeholder in a corporation or business is anyone that has an interest or is affected by the success of the corporation. Stakeholders can be internal or external. Internal stakeholders include employees, managers, and owners. External stakeholders may include suppliers, creditors, customers, government agencies, and communities surrounding the business.
2. What is a Shareholder?
A shareholder, also known as a stockholder, is any individual, company, or institution that owns shares in a corporation. Shareholders are a specific group of stakeholders who have invested capital in the business in exchange for equity. They have potential growth and benefits if the company performs well but also share in the risk if the company performs poorly.
3. What are the main differences between a Shareholder and a Stakeholder?
The primary difference between a shareholder and a stakeholder is stakeholder refers to anyone who has an interest in a business entity, while a shareholder exclusively refers to an individual or entity owning shares in a corporation. Therefore, all shareholders are stakeholders, but not all stakeholders are shareholders.
4. Can a person be both a Stakeholder and a Shareholder?
Yes, a person can be both a stakeholder and a shareholder. It means that the person benefits not only from being part of the business’s success due to their role or contribution but also from the financial gains resulting from owning shares in the business.
5. What are the responsibilities of Stakeholders and Shareholders?
Shareholders often get to vote on corporate matters such as the election of corporate board members. They have the responsibility of voting in ways that guide the company towards profitability, as well as responsible corporate behavior. Stakeholders, on the other hand, do not have voting rights but can still influence a company’s decision. For example, customers, as stakeholders, can affect a company’s decision by their buying habits or public opinion.
Related Entrepreneurship Terms
- Equity Ownership
- Dividend Payouts
- Corporate Governance
- Investor Rights
- Profit Distribution
Sources for More Information
- Investopedia – An extensive resource for investing education, personal finance, market analysis and free trading simulators.
- Forbes – A leading source for reliable business news and financial information.
- Business Insider – A fast-growing business site with deep financial, media, tech, and other industry verticals.
- Harvard Business Review – Provides professionals around the world with rigorous insights and best practices to lead their organizations more effectively.
