Stakeholder Vs Shareholder: Differences Explained!

Stakeholder Vs Shareholder
Stakeholder Vs Shareholder

It is important to understand the differences between a stakeholder vs shareholder so that businesses can make informed decisions that benefit both parties. 

Often, a circumstance that is beneficial to a shareholder may not be beneficial to a stakeholder, or vice versa.  Depending on the type of stock you own, the difference between a stakeholder and a shareholder

As a shareholder, you can receive dividends, vote on company policies such as mergers and acquisitions, and elect members of the company’s board of directors.

Anyone who owns a company’s common stock can vote. However, the number of shares you own determines how powerful your vote is.  This means that large investors have the greatest influence on the overall strategic plan of the company.

Difference Between Stakeholder Vs Shareholder

The basic difference between a stakeholder vs shareholder is that shareholders are a subset of a larger group of stakeholders. 

Traditionally, shareholders have been considered more important than all other stakeholders in a business. This is because they own the business and have the right to receive its cash flows under certain circumstances. 

Public perception of the priority of shareholders over stakeholders is gradually changing in light of the increasing impact of business pollution on local communities and workers, and the impact of workforce reductions on local governments, communities and workers. 

If this trend continues, corporations may find themselves under increasing pressure to make expenditures to please other stakeholders. This may lead to lower earnings per share, which will affect shareholder wealth. 

This means that the traditional goal of maximizing business wealth may be eroded over time in favor of other, more stakeholder-friendly initiatives.

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Who Is A Shareholder?

Shareholders are the owners of shares in the organization.  A shareholder can be an individual, an organization or an organization that owns shares in the capital of another organization. 

Shareholders can be of two types – owners of shares and owners of preferred shares.  A shareholder is an owner of shares in an organization, and a preferred shareholder is an owner of preferred shares in an organization. 

A stockholder has the right to vote on various matters of the company. He or she has the right to receive dividends if the company at all earns sufficient profits and achieves its organizational goals over a period of time. 

On the other hand, stakeholders can be defined as a term used to represent different types of investors of an organization.

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Who Is A Stakeholder?

A stakeholder may be an individual, group or organization that has a primary interest or concern in the business operations of the organization. 

An organization’s business operations, policies, and goals can influence or be influenced by the same stakeholders. 

Directors, creditors, government agencies and their agencies, employees, shareholders, debt holders, suppliers, customers, competitors, suppliers, etc. are all great examples of key stakeholders. 

In this context, it can be said that all shareholders are stakeholders, but all stakeholders are not shareholders. 

Also, in a broader sense, stakeholders can be seen as parties that trade with the organization. They cannot be called owners of the same organization unless they are shareholders of that organization.

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Types Of Stakeholders

Internal Stakeholder

An internal stakeholder is anyone who has a direct relationship with the company or is involved in internal operations.  These are usually business owners, investors, employees and volunteers. 

For example, the head of the marketing department within the company directly affects the day-to-day operations. 

They are also likely dependent on the company’s revenue and working to achieve organizational goals.  This marketing manager would be considered an internal stakeholder.

External Stakeholder

The term “external stakeholders” generally covers anyone who is affected by a company without being involved in its normal operations.  This category includes customers, trade associations, communities, and more. 

For example, residents of downtown San Diego might be considered external stakeholders for Petco Park.  These residents are influenced by the activities held in the park and may feel attached to its activities. 

However, their interest in Petco Park is not a direct result of their ownership or involvement.

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Types Of Shareholders

There are two main categories of shareholders: common and preferred. 

Common Shareholder

A common shareholder owns dividends on the company’s common shares, which are set by the board of directors. 

Common shareholders receive voting rights along with their shares and have some control over management.  However, if the company liquidates its assets, ordinary shareholders will be among the last to receive a payout (after preferred shareholders).

Preferred Shareholders

On the other hand, preferred shareholders own the company’s preferred stock and receive annual dividends.  These shareholders do not have the right to vote or influence the company’s activities. 

Although holders of preferred shares may have a higher claim on the company’s dividends and faster access to assets obtained in liquidation, they have more limited rights than holders of common shares.

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Stakeholder Vs Shareholder Theory

It’s a long-standing debate among business analysts: whether companies should focus primarily on generating higher returns for their shareholders or focus on benefiting all stakeholders (including customers, suppliers, employees, and the community). 

The debate falls into two main schools of thought: stakeholder versus shareholder theory.

Stakeholder Theory

Stakeholder theory was introduced in the 1980s by Dr. R. Edward Freeman and focuses more on business ethics and social responsibility. 

This view focuses on business ethics and argues that companies should create value for all stakeholders, rather than focusing only on those who own shares. 

Freeman’s theory states that by focusing on stakeholders, employees will be more motivated to work and customers will be more interested in services or offerings.

This may mean taking into account local communities that may be seriously affected by an environmental project. It can also mean ensuring that company employees have access to appropriate training during adaptation. 

It also says that if companies violate laws or regulations, it will spend time and resources resolving lawsuits or other complaints.  Instead, focusing on each stakeholder’s business can create long-term stability and profits.

Shareholder Theory

The shareholder theory was first introduced in the 1960s by economist Milton Friedman.  According to Friedman, a company should focus primarily on creating wealth for its shareholders. 

He argues that decisions about social responsibility (such as how to treat employees and customers) rest with shareholders, not company executives. 

Since company managers are essentially employees of the shareholders, they are not required to bear any social responsibilities unless the shareholders decide that they should.

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Conclusion

It is important to understand the differences between shareholders and stakeholders. This is so that businesses can make informed decisions that benefit both parties.  Often, a circumstance that is beneficial to a shareholder may not be beneficial to a stakeholder, or vice versa.  For example, if a company cuts costs by laying off a percentage of its workforce, stakeholders may lose jobs or wages. 

However, shareholders of the same company may receive an increased return on their investment as costs are reduced and profits are increased due to downsizing.

The impact of company decisions on shareholders and stakeholders influences the opinion of potential investors.  For example, a car manufacturing company increases production of a particular model even though sales of that model are steadily declining. 

While this may result in a positive outcome for the company’s stakeholders through increased employment opportunities, higher wages and a boost to the local economy, shareholders may see a reduction in their dividends.  This may persuade investors to seek opportunities with other entities to minimize risk to their portfolios.

Stakeholder Vs Shareholder FAQs

What Is Sustainable Investing?

Sustainable investing is also called socially responsible investing (SRI).  Sustainable investing is investing in companies that focus on material environmental, social and governance (ESG) aspects that affect business operations along with the financial growth of the business.

Between Stakeholder Vs Shareholder Theory, Which Is More Important?

Stakeholders are important to your company, but as a project manager or program manager, you should prioritize stakeholder theory.  That’s because shareholders are usually most concerned about short-term goals that affect stock prices, rather than the long-term health of your company.  If you prioritize short-term success and revenue above all else, you may sacrifice corporate culture, business relationships, and customer satisfaction in the process.

What Is The Goal Of A Shareholder?

Shareholders and stakeholders have very different priorities.  Shareholders have a financial interest in your company because they want the best return on their investment, usually in the form of dividends or stock appreciation.  This means that their first priority is usually to increase total revenue and increase share prices.  Shareholders of private companies and sole proprietors can also be held liable for the company’s debts, which give them an additional financial incentive.

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