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Shareholder vs Stakeholder: What’s the Difference?

While they look and sound similar, there are significant differences in the nature of each as it relates to roles, responsibilities, and functions. Shareholders and stakeholders are likely to have similar views on long-term timelines. In the end, you don’t want to spend time and resources on a project that’s likely to be shut down because of, say, environmentalists lobbying against it because of its potentially negative impact on the environment. These two divergent paths are known as the shareholder and stakeholder theories. 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.

Shareholders can lose money if the stock price goes down while stakeholders typically only lose money if the company fails altogether. The interests of shareholders and stakeholders may align in some ways, but rarely are they one and the same. Like stakeholders, shareholders also want to feel recognized and rewarded for adding value to a company — even if that value may be purely financial.

These people, units, and organizations can be termed as ‘publics with opinions’. The network of the inter-relationships provides the management critical informations for taking decisions. 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. Employees are stakeholders in a business, since they are impacted by its decisions and actions.

• Examples of external stakeholders include suppliers, creditors, and community and public groups.
• Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
• Historically, shareholder theory has been widely accepted and used, noting that a corporation’s duty is to maximize shareholder returns.
• Some employees may also be shareholders if they own stock in the company that employs them.

They hope to drive up share costs, as they’ll earn a bump in their portfolio value (or collect occasional dividends) by doing so. A group of stakeholders in a company experiences the direct effects of that company’s performance and decision-making. 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. Shareholders are free to do whatever they please with their shares of stock — they can sell them and buy stocks from another company, even if it’s a competitor company. In other words, they may be financially invested in the company, but its overall success isn’t always a priority. Stakeholders don’t necessarily have shares in the business but have an interest — a stake — in it.

Shareholder Theory vs. Stakeholder Theory

Stakeholders can be either internal or external, meaning they may or may not work for a company but are somehow impacted by a company’s operations or performance. The expert investment team at Silver Star Properties REIT created this article to clarify the difference between these two titles, what the delineations mean, and what stakeholders vs shareholders value most. Even with overlapping long-term concerns between the two, the primary difference goes back to motivation. Shareholders are driven by profits, while stakeholders are focused on fairness and change.

Sometimes, organizations appoint such individual supporter to the company’s board to mobilize such power. They often look to get dividends and are driven by how the company operates in the short term. On the other hand, stakeholders focus on the company’s products, services, and impact on the broader ecosystem. To highlight and summarize the divide between stakeholders and shareholders, here are 10 key differences to remember.

• In this guide, we’ll uncover those differences and then discuss what can be done to counter negative stakeholder influence on your projects.
• A shareholder is interested in the success of a business because they want the greatest return possible on their investment.
• The vested interest we refer to does not have to be financial in nature.
• The stakeholder group is a significantly broader category than shareholders.
• Stakeholders are individuals, groups or any party that has an interest in the outcomes of an organization.

This tends to make the relationship stakeholders have with a company more long-term, while shareholders have no long-term need for a company. Shareholder vs Stakeholder in this, Shareholders are the owners of equity shares in an organization. A shareholder can be an individual, entity, or organization that owns equity shares in another entity. Shareholders can be of two types – equity shareholders and preference shareholders.

What is their influence like?

A shareholder can choose to sell their shares and, therefore, their stake in the company at any time. For instance, if the company’s share prices increase, shareholders may choose to sell their stocks for a profit. Alternatively, if the company value takes a hit and the stock price falls, shareholders may sell to cut their losses.

What Are the Different Types of Stakeholders?

Certain controllers are internal to the organization and yet constitute a kind of separate entity. For example, workers are part of the organization but the trade unions debits and credits. account sales which represent them are not part of the organization. Trade unions are also controllers since they exert pressure both on the workers as well as on the management.

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But these ways of increasing profits go directly against the interests of stakeholders such as employees and residents of the local community. A shareholder is interested in the success of a business because they want the greatest return possible on their investment. Stock prices and dividends go up when a company performs well and increases its value, which increases the value of stocks the shareholder owns. Traders and investors often mix the “shareholder” and “stakeholder” terms and should understand how they differ significantly.

It has been debated whether a company should primarily consider its shareholders or stakeholders when making business decisions and adhering to fiduciary duty. Historically, shareholder theory has been widely accepted and used, noting that a corporation’s duty is to maximize shareholder returns. However, the emergence of corporate social responsibility (CSR) and environment, social, and corporate governance (ESG) has begun to shift the public view of the duty companies have to their stakeholders. The terms shareholder and stakeholder can oftentimes be confused or improperly used interchangeably. Identifying and understanding the needs of all stakeholders, whether individuals, organizations, or the environment, is crucial for business leaders to understand how their enterprise will impact the greater community. This article defines shareholders and stakeholders, identifies their key differences, and begins to explore how entrepreneurs can consider all stakeholders during the conception of an enterprise to compel their mission.

In contrast, stakeholders, are not the owners of the company, but are they are the parties that deal with the company. In the given article excerpt, we’ve broken down all the important differences between shareholders and stakeholders. Conversely, external stakeholders may also sometimes have a direct effect on a company without a clear link to it. When the government initiates policy changes on carbon emissions, the decision affects the business operations of any entity with increased levels of carbon. That’s not so easy a question to answer, and one that has been debated forever by business analysts. Should businesses be solely focused on increasing profits or do they have an ethical responsibility to the environment?

Customers are those stakeholders to whom the organization supplies goods and services. Sales and marketing personnel are frontline executives who are in direct touch with the customers. Management is to recognize the fact that there are always distinct customers groups. Management is to identify these groups for monitoring more effectively their several sometimes conflicting demands. Management is to acknowledge that feedbacks from the customers groups are important inputs for sustaining the organizational performance.

On the other hand, external stakeholders are parties that do not have a direct relationship with the company but may be affected by the actions of that company. Examples of external stakeholders include suppliers, creditors, and community and public groups. Shareholders can generally sell their ownership or buy more shares at will, whereas stakeholders are usually bound to the activities of a company and the related impacts regardless of choice.

What is a Stakeholder?

A shareholder can be an individual, company, or institution that owns at least one share of a company and therefore has a financial interest in its profitability. For example, a shareholder might be an individual investor who is hoping the stock price will increase because it is part of their retirement portfolio. Shareholders have the right to exercise a vote and to affect the management of a company. Shareholders are owners of the company, but they are not liable for the company’s debts. For private companies, sole proprietorships, and partnerships, the owners are liable for the company’s debts.

From a project management perspective, a stakeholder is anyone involved in your project’s outcome. That typically includes project managers, project team members, project sponsors, executives, customers, users, and third-party vendors. Stakeholders have a vested interest in the project and will be affected by it along the way. A stakeholder is anyone with an interest in the success of your organization or company. Stakeholder theory, on the other hand, notes that it’s the business manager’s ethical duty to both corporate shareholders and the community at large that the activities that benefit the company don’t harm the community.

It’s not as easy to pull up stakes, so to speak, as it can be for shareholders. However, their relationship to the organization is tied up in ways that make the two reliant on one another. The success of the organization or project is just as critical, if not more so, for the stakeholder over the shareholder. Stakeholder analysis is an important element of planning that must be done by project managers to identify and prioritize stakeholders before the project begins.