What is a stakeholder?

Stakeholder Theory

A stakeholder is an individual, company, or organization that has an interest in or is affected by the business activities and outcomes generated by those activities. A stakeholder may be impacted by a company’s activities and has the ability to influence the company, or both.

What is a Stakeholder?

A stakeholder is a group or individual connected in any way to a company and will be affected by the company and its operations. The connection can be a strong and close relationship, such as that of an owner, supplier, or customer. It could also be a less direct connection, as seen with community members who may be affected by local tax revenues generated by the company or pollution produced by it.

Note: Customers, suppliers, employees, communities, and individuals financing the company are all examples of stakeholders.

What Does a Stakeholder Do?

Depending on the type of stakeholder, they may do nothing specific other than interact with the company in a way that meets their needs. However, some stakeholders take a more active role in the company, either directly or indirectly.

For example, a customer may simply purchase products or services from the company. The customer is affected by the company because it provides them with something they want or need, and they influence the company as their purchases contribute to its revenue.

However, customers can also show active interest in how they interact with the company through consumer activism, such as boycotting. After voting, consumer activism is the most common political activity in the United States.

Employees are another type of stakeholder. Some may simply choose to perform their jobs in exchange for their salaries and benefits. Others may choose to go on strike or resign if the employer does something they see as unethical or immoral.

Types of Stakeholders

There are two basic types of stakeholders:

Primary Stakeholders: Individuals who are directly affected by the company and its activities or decisions. Shareholders fall into this category as their profits depend on how the company chooses to operate.

Secondary Stakeholders: Individuals who are indirectly affected by the company and its activities or decisions. They do not interact directly with the company, but may interact with primary stakeholders or be connected to them. This category includes local community members who do not actually shop at the company.

Stakeholders vs. Shareholders

Shareholders are a very specific group of stakeholders who own shares in the company. Shareholders can vote on important decisions, elect board members, and sell their ownership in the company. Not all stakeholders can do these things, as other types of stakeholders do not own shares in the company. For example, customers cannot elect board members unless they are also shareholders.

Stakeholder – Shareholder

Does not own a portion of the company – Owns a portion of the company through shares

Connected to the company directly or indirectly – Connected to the company directly through ownership

Not all stakeholders are shareholders – All shareholders are stakeholders

May not be able to influence the company – Can influence the company

Stakeholder Theory

The traditional idea of the purpose of a company is that it should operate with the goal of maximizing shareholder wealth. However, stakeholder theory goes beyond maximizing shareholder wealth as the sole goal of the company.

Stakeholder theory was developed by Dr. R. Edward Freeman and published in his book “Strategic Management: A Stakeholder Approach” in 1984. His aim was to create a broader vision of strategic management that goes beyond traditional economic theory.

Note: Although stakeholder theory does not exclude creating value for the shareholder, it emphasizes the idea that the company should create value for all stakeholders, not just shareholders.

It indicates
The stakeholder theory posits that the role of the manager is to think about how to achieve the goals of all stakeholders, not just the goals of one group such as shareholders. However, this can often be easier said than done, as the interests of different groups of stakeholders often conflict.

Main Takeaway:

• A stakeholder is any group or individual who is affected by the company, either directly or indirectly.
• A stakeholder’s interaction with the company can be simple and beneficial, such as an employee receiving a paycheck or a customer purchasing a product. Stakeholders can also engage more actively with the company, such as through consumer activism like boycotting.
• Shareholders are one type of stakeholder, but stakeholders are a broad group that includes more than just shareholders.
• The stakeholder theory goes beyond traditional shareholder wealth maximization and is the idea that a company should be aware of all stakeholders.

Source: https://www.thebalancemoney.com/what-is-a-stakeholder-5093531