The terms stakeholder and shareholder are sometimes incorrectly used interchangeably. It’s important to be aware of the distinction between the two.
A shareholder is any party—whether an individual, a company, or an institution—that has shares in a publicly owned company. Stakeholder is a broader category that refers to all parties with an interest in a company’s success. Thus, shareholders are always stakeholders, but stakeholders are not always shareholders.
Stakeholders in a company include its employees, board members, suppliers, distributors, governments, and sometimes even members of the community where a business is operating. Employees and board members are internal stakeholders because they have a direct relationship with the company. Distributors and community members, however, are examples of external stakeholders.
Although stakeholders do not have a direct relationship with the company, they may be affected by the company’s actions or performance.
The Differences Between Shareholders and Stakeholders
|Own at least one share of company stock||Not necessarily stock owners, but have a vested interest in the company’s success|
|Vested in the company’s success as an investment (through stock-price appreciation)||Interested in the company’s success for reasons other than appreciation of the stock price|
|Interest may cease if a shareholder sells shares||Typically have a long-term interest in the company’s success|
Shareholders are primarily interested in a company’s stock-market valuation because if the company’s share price increases, the shareholder’s value increases. Stakeholders are interested in the company’s performance for a wider variety of reasons.
For example, employees want the company to remain financially stable because they rely on it for their income. Suppliers desire the company to continue doing business with them. Civic leaders want the company to remain an employer of the area’s residents and to contribute to tax revenue.
Stock Price Valuation vs. Broader Success
Shareholders focus on the company’s stock valuation. Because they own shares of the company’s stock, they want the company to take actions that produce growth and profitability, thereby increasing the share price and any dividends it may pay to shareholders.
Because stakeholders are typically more concerned with a company’s long-term financial stability, they may have different priorities than shareholders, who may be interested only as long as they own stock. For instance, stakeholders who are concerned about a company’s performance at environmental, social, and governance (ESG) criteria may be more willing than shareholders to sacrifice a percentage of profit to gain a higher ESG score over time.
Short-Term Interest vs. Long-Term Interest
Shareholders frequently are interested in a company’s performance only as long as they hold shares of stock. Stakeholders, on the other hand, often have a longer-term interest in a company’s performance, even if they don’t own shares of stock. This may be because they earn their living at the company, they own or operate a business that is a supplier to the company, or they live in a community where the company operates and contributes to the local economy.
Because shares of stock are easily sold, stakeholders’ interests in a company are often more complex, as it’s generally easier for a shareholder to cut ties with a company than a stakeholder.
Shareholder Theory vs. Stakeholder Theory
The interests of stakeholders and shareholders don’t always align. In fact, they can be in direct opposition to each other. As such, shareholders may want a company to outsource production overseas or to use a different supplier to increase profits, while stakeholders may want to keep production the same for quality-control purposes, to avoid supply-chain controversies, or for other reasons.
For more than two decades beginning in 1997, the Business Roundtable, an association of chief executive officers of leading U.S. companies, endorsed principles known as shareholder theory, or shareholder primacy—the view that corporations should principally serve their shareholders.
But in 2019, the Business Roundtable issued a statement on the purpose of the corporation that affirms “the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”
- Shareholders of a company are always stakeholders, but stakeholders are not necessarily shareholders.
- Employees, company executives, and board members are internal stakeholders because they have a direct relationship with the company. Suppliers, distributors, or community members are types of external stakeholders.
- Shareholders primarily focus on a company’s profitability and share price. Stakeholders generally care about a company’s overall health.
- Shareholders’ interest in a company can cease the minute they no longer own shares. Stakeholders, on the other hand, typically have a more long-term interest in a company because their ties are more complex and not broken as easily.