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Stakeholder

Any individual, group, or party with an interest in an organization and the outcomes of its actions

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 tradeoffs when trying to please all of them.

 

Stakeholder Diagram - Types of Stakeholders
Types of Stakeholders

 

Types of Stakeholders

This guide will analyze the most common types of stakeholders and look at the unique need that each of them typically has. The goal is to put you in the shoes of each type of stakeholder and see things from their point of view.

 

#1 Customers

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 and its value. For example, passengers traveling on an airplane literally have their lives in the company’s hands while flying with the airline.

 

#2 Employees

Stake: Employment income and safety

Employees have a direct stake in the company in that they earn an income to support themselves, as well as 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, transportation, mining, oil and gas, construction, etc.).

 

#3 Investors

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 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 different classes of shareholders.

 

#4 Suppliers and Vendors

Stake: Revenues and safety

Suppliers and vendors sell goods and/or services to the business and rely on it for revenue generation and on-going business. In many industries, the suppliers also have their health and safety on the line, as they may be directly involved in the company’s operations.

 

#5 Communities

Stake: Health, safety, economic development

Communities are major stakeholders in large businesses. 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, they will immediately feel the impact on employment, incomes, and spending in the area. In some industries, there is a potential health impact, as companies may alter the environment.

 

#6 Governments

Stake: Taxes and GDP

Governments can also be considered a major stakeholder in a business as they collect taxes from the company (corporate income), as well as from all the people it employs (payroll taxes) and other spending the company incurs (goods and services taxes). Governments benefit from the overall Gross Domestic Product (GDP) that companies contribute to.

 

Ranking/Prioritizing Stakeholders

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 at stake. 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:

  1. Customers
  2. Employees
  3. Investors

Read more about Jack Ma’s stakeholder priorities here.

Many other CEOs also tout shareholder primacy as their number one interest.

Much of the prioritization will be based on the stage a company is at. For example, if it’s a startup or an early-stage business, customers and employees are more likely to be first. If it’s a mature publicly traded company, shareholders are likely to be first.

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 thus has an equity interest.

 

Additional resources

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 resources will be helpful:

  • Corporate Structure
  • Shareholder Primacy
  • Bargaining Power of Suppliers
  • Fixed and Variable Costs

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