What is a Stakeholder?
In business, a stakeholder is any individual, group, or party that has an interest in an organization and the outcomes of its actions. Common examples of stakeholders include employees, customers, shareholders, suppliers, communities, and governments. Different stakeholders have different interests, and companies often face trade-offs in trying to please all of them.
Types of Stakeholders
This guide will analyze the most common types of stakeholders and look at the unique needs that each of them typically has. The goal is to put yourself in the shoes of each type of stakeholder and see things from their point of view.
Stake: Product/service quality and value
Many would argue that businesses exist to serve their customers. Customers are actually stakeholders of a business, in that they are impacted by the quality of service/products and their value. For example, passengers traveling on an airplane literally have their lives in the company’s hands when flying with the airline.
Stake: Employment income and safety
Employees have a direct stake in the company in that they earn an income to support themselves, along with other benefits (both monetary and non-monetary). Depending on the nature of the business, employees may also have a health and safety interest (for example, in the industries of transportation, mining, oil and gas, construction, etc.).
Stake: Financial returns
Investors include both shareholders and debtholders. Shareholders invest capital in the business and expect to earn a certain rate of return on that invested capital. Investors are commonly concerned with the concept of shareholder value. Lumped in with this group are all other providers of capital, such as lenders and potential acquirers. All shareholders are inherently stakeholders, but stakeholders are not inherently shareholders.
#4 Suppliers and Vendors
Stake: Revenues and safety
Suppliers and vendors sell goods and/or services to a business and rely on it for revenue generation and on-going income. In many industries, suppliers also have their health and safety on the line, as they may be directly involved in the company’s operations.
Stake: Health, safety, economic development
Communities are major stakeholders in large businesses located in them. They are impacted by a wide range of things, including job creation, economic development, health, and safety. When a big company enters or exits a small community, there is an immediate and significant impact on employment, incomes, and spending in the area. With some industries, there is a potential health impact, too, as companies may alter the environment.
Stake: Taxes and GDP
Governments can also be considered a major stakeholder in a business, as they collect taxes from the company (corporate income taxes), as well as from all the people it employs (payroll taxes) and from other spending the company incurs (sales taxes). Governments benefit from the overall Gross Domestic Product (GDP) that companies contribute to.
Companies often struggle to prioritize stakeholders and their competing interests. Where stakeholders are aligned, the process is easy. However, in many cases, they do not have the same interests. For example, if the company is pressured by shareholders to cut costs, it may lay off employees or reduce their wages, which presents a difficult tradeoff.
Jack Ma, the CEO of Alibaba, has famously said that, in his company, they rank stakeholders in the following priority sequence:
Read more about Jack Ma’s stakeholder priorities here.
Many other CEOs tout shareholder primacy as their number one interest.
Much of the prioritization will be based on the stage a company is in. For example, if it’s a startup or an early-stage business, then customers and employees are more likely to be the stakeholders considered foremost. If it’s a mature, publicly-traded company, then shareholders are likely to be front and center.
At the end of the day, it’s up to a company, the CEO, and the board of directors to determine the appropriate ranking of stakeholders when competing interests arise.
Stakeholder vs Shareholder
This is an important distinction to make. A stakeholder is anyone who has any type of stake in a business, while a shareholder is someone who owns shares (stock) in a business and thereby has an equity interest.
CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful: