Stakeholder vs. Shareholder: What’s the Difference?

By Indeed Editorial Team

Updated September 3, 2021 | Published February 25, 2020

Updated September 3, 2021

Published February 25, 2020

While they sound similar, shareholders and stakeholders serve different functions in a corporation. This makes it crucial to know the differences between the two professions so a business can manage its interests effectively. In this article, we discuss what stakeholders and shareholders are, their motivations and differences.

What is a stakeholder?

A stakeholder is a party that has a financial interest in a company's success or failure. It can be an individual, institution or group that can impact or be impacted by an organization's projects and objectives. Stakeholders can be from within an organization or an external body.

Internal stakeholders are people with a direct relationship with the company through investment, employment or ownership. They include shareholders, managers, project coordinators, line managers and senior management. External stakeholders do not have a direct relationship with the organization but can impact or be impacted by its actions. Public groups, vendors, suppliers, customers, contractors, the host community, creditors and industry regulators are examples of external stakeholders.

Stakeholders can be shareholders of a company, but not all stakeholders are shareholders. They often have a long-term interest in an organization and desire for it to succeed. This is because stakeholders and a company often depend on each other. The firm's success often translates to gains for the stakeholder.

For example, a company's employees may want their organization to succeed so it can afford higher salaries and improved work benefits. The community hosting a new tech campus will also want the project to succeed because of the benefits it will bring to its members.

Related: A Guide To Participative Management

What is a shareholder?

A shareholder is an individual or organization that owns shares in a corporation or project. The main interest of a shareholder is the profitability of the project or business. In a public corporation, shareholders want the business to make huge revenues so they can get higher share prices and dividends. Their interest in projects is for the venture to be successful. Unlike stakeholders, shareholders have extensive rights as outlined in the shareholders' agreement or the corporation's rules. Here are examples of shareholder rights:

  • They can buy and sell their shares

  • They receive dividends from the company's profits

  • They can nominate board members

  • They can vote during the election of board members

  • They can vote on mergers and acquisitions, takeover and changes to the company rules

  • They can sue management over violation of fiduciary duty

  • Unlike stakeholders, shareholders focus on a company's profitability so they are in for the short term. They can sell their shares in the company and reinvest it in another entity, even a competitor.

Related: Using Key Performance Indicators (KPIs) to Achieve Goals

How stakeholders and shareholders influence a company's decision-making process

Shareholders and stakeholders often have divergent interests based on their relationship with the company or organization. This can lead to conflict during negotiations for mergers and acquisitions, as shareholders often support the move because of the higher dividend they will receive. However, company stakeholders like employees, suppliers and management may not support such deals because it can lead to job losses and disruption of supply chains.

In the past, shareholders had an overwhelming influence on their corporation's policies because they have ownership and voting rights. Most companies emphasized profit maximization at the expense of other stakeholders. However, the growing importance of corporate social responsibility has given stakeholders more input in the affairs of organizations.

Corporate social responsibility demands that a company consider the interests of shareholders and other stakeholders when making decisions. Nowadays, many companies consider the input of different stakeholders who will be affected by their actions before they make a final decision.

For example, a company whose plants will pollute a community's water supply may invest in a treatment plant to provide safe drinking water to affected areas. Corporate social responsibility can also motivate a firm to set up a college scholarship in the name of a retired executive.

Related: What Is Corporate Social Responsibility?

Key differences between shareholders and stakeholders

The major differences between shareholders and stakeholders relate to their interest in the company. These differences include:

1. Longevity

A major difference between shareholders and stakeholders is the length of their relationship with a company. Stakeholders' interest in the organization is for the long term. They might be employees who depend on the company for their livelihood or suppliers and vendors whose business relies on the firm's patronage. Stakeholders might be a host community that enjoys the organization's CRS efforts, and its multiplier effects on the local economy. These parties will want the business to continue to succeed to protect the benefits they derive from its operations.

Shareholders' relationship with a company lasts for as long as the firm meets its expectations. This means more profits and higher dividend payouts. If the business has losses, shareholders can sell their equity and cut losses. However, a company's stakeholders can't dump it at short notice because they have more to gain if the business succeeds in the long term.

2. Viewpoint

The interests of shareholders and stakeholders determine their viewpoints. For shareholders, the most important job for the company is to increase stock prices, pay more dividends, expand into new markets, increase profitability and make the business attractive to more investment. They want the company to achieve organic and inorganic growth to increase their returns on investment.

Stakeholders are more concerned about achieving long-term goals, better working conditions and improved service delivery. For many employees, job stability, better compensation and improved welfare packages are more important than higher profit margins. Customers also value enhanced product service quality and supportive customer service.

3. Categorization

Shareholders make up a segment of an organization's stakeholders. They own a part of the company, have voting rights and may sue management if it does not discharge its responsibilities. However, not all stakeholders are shareholders. Shareholders are only present in companies limited by shares.

Government agencies, sole proprietorships, partnerships and nonprofit organizations all have stakeholders even if they have no shareholders. Organizations like public universities have no shareholders but have varieties of stakeholders, including the faculty, administrators, students, the host community and taxpayers.

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