What Is a Stakeholder for a Nonprofit?

Why Stakeholder Relations Are So Important

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What Does “Stakeholder” Mean for a Nonprofit?

Quite a lot.  The term “stakeholder” refers to anyone, individual or group that has an interest in your nonprofit.

That could be people directly involved such as board members, people you serve, donors, or foundations that give you grants.

Many other individuals or groups can be stakeholders too, even if they are more indirectly involved such as vendors where you purchase supplies or services.

A stakeholder can be the company that sponsors one of your events.

All of these individuals and groups can be affected by what your organization does or even help determine what your nonprofit does.

Typical Nonprofit Stakeholders

Employees

Members (some nonprofits have paying or honorary members)

Volunteers, from board members to the generous folks who help you keep your organization running. 

Beneficiaries of your services or “customers” – beneficiaries might be the homeless people you serve or clients, like YMCA subscribers who participate in activities. Excellent Customer service is a must have for nonprofits, just like commercial businesses.

Donors, grant givers such as foundations, state or federal agencies that provide funding. Every charity should have a basket of income from a myriad of sources. Each source brings stakeholders that must be kept interested and engaged.

Your local community.

  Every nonprofit is part of a larger community, a citizen of society. As such, nonprofits must honor and participate in community activities and cultivate community leaders, institutions, and government agencies.

Other nonprofits. Most charities now realize they cannot accomplish their missions or raise funds by themselves.

Think about partnering with other charities rather than competing with them.

Getting Technical and Legal About Stakeholders

There are many types of IRS-recognized nonprofits, all with different legal responsibilities and corporate structures. Charitable organizations or 501c3 charities are what we usually think of when we consider “nonprofits.” Those are the organizations where we donate, volunteer, and receive many charitable services.

Nonprofit stakeholders fall into three legal categories: constitutional, contractual, and third party.

For charitable nonprofits, constitutional stakeholders are your board members or trustees if your organization is incorporated. For unincorporated nonprofit associations, the board members might be called the management committee. 

In either case, constitutional stakeholders have responsibility for managing the organization.  For a charitable nonprofit, those board responsibilities are well defined.  In fact, board members can get into legal difficulties if they do not administer the charity responsibly.

The largest pothole for board member are conflicts of interest. Such potential conflicts are rife and must be diligently avoided. Board members must not base decisions about the charity on their personal interests or their relationships or loyalty with or to other persons or organizations.

There are numerous ways to avoid conflicts of interest, but education about what conflicts are when you recruit board members is the first line of defense. Board members must be able to identify and declare their potential conflicts and then abstain from voting on issues where a conflict might exist.

Contractual stakeholders for a charity include paid staff, funders such as a  foundation, or any business, group or individual that has a formal relationship with the charity.

Third-party stakeholders for a charity include all the people and groups that may be affected by what the charity does. That includes businesses, the local government, and the citizens who live in the community.

Stakeholders vs. Customers

Although many stakeholders of charities resemble “customers” in the commercial sense, there is one glaring difference.

Charities depend on getting their stakeholders involved in their organization.  When we are customers, we buy a product or use a service, but do not get terribly involved in the businesses we use.

On the other hand, charities develop elaborate programs to keep stakeholders involved and interested, from keeping donors happy with lots of communication and events or creating rewarding experiences for volunteers.  We call this stewardship or relationship management.

Customer service for charities turns out to be more constant and deeper than the relationship between a business and its clients.

Charities often think that once they provide a service to the people or animals they protect, their job is over. However, to develop a long-term sustainable organization, they quickly learn that cultivating and nurturing their stakeholders is just as important to their cause as their primary activities.