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Shareholder vs. Stakeholder: What's the Difference?

Gordon Scott has been an active investor and technical analyst or 20+ years. He is a Chartered Market Technician (CMT).

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Shareholder vs. Stakeholder: An Overview

When it comes to investing in a corporation, there are shareholders and stakeholders. While they have similar-sounding names, their investment in a company is quite different.

Shareholders are always stakeholders in a corporation, but stakeholders are not always shareholders. A shareholder owns part of a public company through shares of stock, while a stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation. (They have a "stake" in its success or failure.) As a result, the stakeholder has a greater need for the company to succeed over the longer term.

Key Takeaways

  • Shareholders are always stakeholders in a corporation, but stakeholders are not always shareholders.
  • Shareholders own part of a public company through shares of stock; a stakeholder wants to see the company prosper for reasons other than stock performance.
  • Shareholders don't need to have a long-term perspective on the company and can sell the stock whenever they need to; stakeholders are often in it for the long haul and have a greater need to see the company prosper.

Understanding the Role of the Shareholder

A shareholder can be an individual, company, or institution that owns at least one share of a company and therefore has a financial interest in its profitability. A shareholder can also be known as a stockholder.

For example, a shareholder might be an individual investor who is hoping the stock price will increase because it is part of their retirement portfolio. Shareholders have the right to exercise a vote and to affect the management of a company. Shareholders are owners of the company, but they are not liable for the company’s debts. For private companies, sole proprietorships , and partnerships, the owners are liable for the company's debts.

A sole proprietorship is an unincorporated business with a single owner who pays personal income tax on profits earned from the business.

A shareholder is interested in the success of a business because they want the greatest return possible on their investment. Stock prices and dividends go up when a company performs well and increases its value, which increases the value of stocks the shareholder owns.

The more stock a shareholder owns, the more they have invested in the company and the more stake they have in it. The votes of shareholders who own more stock have more weight within the company.

There are generally two different types of shareholders.

  • Common shareholders : Anyone who owns common stock in a company. Common stock gives you part ownership of the company and often has higher rates of return over the long term. Common shareholders can vote on board members or other company policies.
  • Preferred shareholders : Anyone who owns preferred stock. Preferred stock has lower rates of return in the long term but guarantees a yearly dividend. Preferred shareholders can't vote on policies or board members, but they can claim assets before common shareholders if a company fails and its assets are liquidated.

Understanding the Role of the Stakeholder

Stakeholders are those who either affect or are affected by a project or company. They have a "stake" in its success or failure. Stakeholders might be shareholders or owners. They can also be:

  • Employees of the company
  • Bondholders who own company-issued debt
  • Customers who may rely on the company to provide a particular good or service
  • Suppliers and vendors who may rely on the company to provide a consistent revenue stream
  • Community members who are impacted by the company's decisions and actions
  • Partners in events, promotions, or other activities that the company engages in

In general, stakeholders can be divided into two types:

  • Internal stakeholders : Those who are employed by the company or have a direct relationship with it. These are usually employees, shareholders, executives, and partners.
  • External stakeholders : Those who are impacted by your company but don't have a direct relationship with it. These are usually customers, suppliers, and community members.

What Is Stakeholder Theory?

Stakeholder Theory is a recent theory of business that argues against the separation of economics and ethics. It states that short-term profits—prioritizing shareholders—should not be the primary objective of a business.

Under this theory, prioritizing the needs and interests of stakeholders over shareholders is more likely to lead to long-term success, both for the business and for the communities that it is a part of. This stakeholder mindset is, in turn, likely to create long-term value for both shareholders and stakeholders.

A shareholder can sell their stock and buy different stock; they do not have a long-term need for the company. Stakeholders, however, are bound to the company for a longer term and for reasons of greater need.

For example, if a company is performing poorly financially, the vendors in that company's supply chain might suffer if the company no longer uses their services. Similarly, employees of the company, who are stakeholders and rely on it for income, might lose their jobs.

Stakeholders and shareholders also may have competing interests depending on their relationship with the organization or company. For example, shareholders may want a company to maximize profits, which could be done by keeping wages low, reducing employees' hours so the company does not have to pay them benefits, or using less expensive manufacturing processes even if they pollute the local ecosystem. But these ways of increasing profits go directly against the interests of stakeholders such as employees and residents of the local community.

Stakeholder vs. Shareholder in CRS Companies

The emergence of corporate social responsibility (CSR), a self-regulating business model that helps a company be socially accountable to itself, its stakeholders, and the public, has encouraged companies to take the interests of all stakeholders into consideration. During their decision-making processes, for example, companies might consider their impact on the environment instead of making choices based solely upon the interests of shareholders. Under CSR governance, the general public is now considered an external stakeholder.

When a company's operations could increase environmental pollution or take away a green space within a community, for example, the public at large is affected. These decisions may increase shareholder profits, but stakeholders could be impacted negatively. Therefore, CSR encourages corporations to make choices that protect social welfare, often using methods that reach far beyond legal and regulatory requirements.

Are Shareholders or Stakeholders More Important?

Shareholders have the power to impact management decisions and strategic policies. However, shareholders are often most concerned with short-term actions that affect stock prices. Stakeholders are often more invested in the long-term impacts and success of a company. Stakeholder Theory states that ethical businesses should prioritize creating value for stakeholders over the short-term pursuit of profit, as this is more likely to lead to long-term health and growth for both the business and everyone connected to it.

Are Employees Shareholders or Stakeholders?

Employees are stakeholders in a business, since they are impacted by its decisions and actions. Some employees may also be shareholders if they own stock in the company that employs them.

Are CEOs Stakeholders?

A CEO is a stakeholder in the company that employs them, since they are affected by and have an interest in the actions of that company. Many CEOs of public companies are also shareholders, especially if stock options are a part of their compensation package. However, if a CEO does not own stock in the company that employs them, they are not a shareholder. A CEO may be an owner of a private company without being a shareholder (as there are no shares to buy).

A stakeholder is anyone who is impacted by a company or organization's decisions, regardless of whether they have ownership in that company. Shareholders are those who have partial ownership of a company because they have bought stock in it. All shareholders are stakeholders, but not all stakeholders are shareholders.

Both shareholders and stakeholders are important, but ethical business ownership and management recognizes that the short-term profit goals of shareholders may not always be in the best long-term interest of either the company or the community that it is a part of. Stakeholder Theory suggests that prioritizing the needs and interests of stakeholders over those of shareholders is more likely to lead to long-term success, health, and growth across a variety of metrics.

U.S. Securities and Exchange Commission. " Shareholder Voting ."

U.S. Small Business Administration. " Sole Proprietorship ."

University of Michigan. " Stakeholder Theory and "The Corporate Objective Revisited" ," Page 1-3.

UVA Darden Ideas to Action. " Principles and Purpose: A Statement on Stakeholders ."

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Companies often have various people interested in their success, including shareholders and stakeholders. While these two groups often overlap, they are not the same.

The first thing to know is that shareholders are always stakeholders because their success depends on the company’s success. While stakeholders may also succeed due to the company, they may not own stock.

What is a stakeholder?

Stakeholders are people who depend on the company, including investors. But a stakeholder’s relationship with a company can be more complex than that of a shareholder. Stakeholders can be company employees, suppliers, vendors, customers and even the local community.

While some stakeholders are mainly concerned with a company’s performance for financial reasons, that isn’t always the case. A company’s customers can be stakeholders, as can government entities, which are supported by the company’s taxes and those of employees.

For exanmple , if a company builds a new plant for manufacturing or refining, it might have environmental impacts on the surrounding area. So people who live there are stakeholders because the plant might affect their physical and emotional well-being.

What is a shareholder?

In contrast, a shareholder is a person or institution that owns one or more shares of stock in a company . For example, individuals often purchase shares of stock as part of their retirement strategy, hoping to enjoy long-term share appreciation.

Institutions might have other motivations for purchasing stock. For instance, common stock comes with voting rights, so institutions may buy this type of stock to gain a controlling interest in a company. Companies may issue another kind of stock called preferred stock , and owners of this could also rightly be termed shareholders.

Key differences between shareholders and stakeholders

Shareholders and stakeholders can often have overlapping priorities, but they aren’t the same. Here are some key differences between them.

Company ownership

All shareholders are stakeholders, but not all stakeholders are shareholders. Owning stock in the company makes you a shareholder as well as a stakeholder. But anyone affected by the company could be considered a stakeholder, whether they own the company’s stock or not.

Shareholders are focused on financial returns, while stakeholders are interested in broader performance success. Common stockholders have voting rights, and can exercise them at shareholder meetings. However, the shareholder’s motivation to vote is often financial. Most shareholders buy stock in a company mainly to generate a profit.

Stakeholders might be financially interested in a company, but not necessarily because they are shareholders. For example, a company’s employees are stakeholders but may or may not own shares of stock. However, their job security depends on the company’s financial success. Stakeholders usually want a company to succeed, but for reasons that can be more complex than its share price.

Short-term outlook vs. long-term outlook

Shareholders are often more short-term focused than stakeholders. The short-term focus of shareholders is evident when the press reports a negative news story about a company. Negative press often leads to an immediate drop in share price as investors offload shares. However, the news story may not affect the company long term.

Stakeholders tend to be more long-term focused. Employees, suppliers, and vendors often look to maintain their relationship with the company for years. Stability is often a plus for stakeholders, who may be less concerned with day-to-day developments. They may be happy as long as they can maintain their existing social or economic agreements with the company.

Shareholder theory vs. stakeholder theory

Shareholder theory suggests that the sole responsibility of corporations is to maximize profits for shareholders. Stakeholder theory, in contrast, is the idea that stakeholders should have priority and that the relationship between stakeholders and the company is more complex and nuanced.

Shareholders often focus on short-term fluctuations in a company’s stock price. If a company fails to turn a profit , shareholders can sell their stock. They can either repurchase the stock later or buy stock in a different company So they’re able to dissolve their relationship with the company quickly and maybe with little cost.

But things may not be so simple for stakeholders. For instance, a supplier might rely on another business to buy its products. If the company struggles, it may stop placing orders with the supplier. This would likely impact the long-term financial performance of the supplier negatively as well as the buyer, whose product lines might suffer, too.

Bottom line

While the key difference between a shareholder and stakeholder is whether they own stock or not, the two groups can differ in many other respects, particularly their attitudes and emotional investment in the company. Stakeholders have broader motivations beyond the financial success of the business that they’re connected with.

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Shareholder vs. stakeholder: What’s the difference?

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The terms shareholder and stakeholder are sometimes used interchangeably, but they’re actually quite different. A shareholder is someone who owns stock in your company, while a stakeholder is someone who is impacted by (or has a “stake” in) a project you’re working on. Learn about the key differences between shareholders and stakeholders, plus why it’s important to consider the needs of all stakeholders when you make decisions.

Warren Buffett bought his first stock in the spring of 1942—when he was just 11 years old. While other kids were playing baseball and trading comic books, Buffett purchased six shares of CITGO stock at $38 a piece and became a company shareholder for the first time.

The soon-to-be investment mogul was a small fish back then. He might have owned shares in CITGO, but at 11 years old he probably wasn’t a key stakeholder for any major project teams. In fact, the company probably didn’t even know he existed. 

So how could Buffett be a shareholder but not a stakeholder? These two words sound similar, but they actually represent two very different roles. 

What is a shareholder?

As a shareholder, you want to get the most financial return on your investment. That means you’re probably interested in how the company performs on a high level, because stock prices go up when the company does well. And when stock prices go up, you have an opportunity to sell your shares and make a profit. 

Depending on the type of shares you own, being a shareholder lets you receive dividends, vote on company policies like mergers and acquisitions, and elect members of the company’s board of directors. Anyone who owns common stock in a company can vote, but the number of shares you own dictates how much power your vote carries. That means big investors hold the most sway over a company’s overall strategic plan .

Types of shareholders

Depending on the type of stock you own, you’re either a common shareholder or a preferred shareholder. You can buy both types of shares through a normal brokerage account, but they give you different benefits. 

Common shareholders own common stock. Common stock typically yields higher rates of return in the long-term and gives shareholders part ownership of a company. That means anyone who owns common stock in a company can vote on corporate policies and elect members of your board of directors. However, common shareholders shoulder a bit more risk—if a company is liquidated, they can only claim assets after bondholders, preferred shareholders, and other debtholders have been paid in full. 

Preferred shareholders own preferred stock. Preferred stock typically yields lower long-term gains but gives shareholders a guaranteed annual dividend payment. Preferred shareholders usually can’t vote on policies or elect board members, so they don’t have a say in a company’s future. However, they take on a bit less risk—if a company is liquidated, preferred shareholders can claim assets before common stakeholders. 

What is a stakeholder?

A stakeholder is someone who can impact or be impacted by a project you’re working on. We usually talk about stakeholders in the context of project management , because you need to understand who’s involved in your project in order to effectively collaborate and get work done. But stakeholders can be more than just team members who work on a project together. For example, shareholders can be stakeholders of your project if the outcome will impact stock prices. 

Stakeholders come in many different forms, from independent contributors to company executives. And they don’t have to be within your organization either—for example, an external agency you work with might be a stakeholder on an upcoming event. Similarly, your customers can be stakeholders when their preferences directly influence your product.

Types of stakeholders

There are two main types of stakeholders: 

Internal stakeholders are people who have a direct relationship with your company, like your teammates and cross-functional partners. They’re often employed by your company, but not always. For example, shareholders are internal stakeholders because they’re tied to your company through the stocks they own. As such, they’re directly impacted by projects that influence stock prices. 

External stakeholders are people who don’t have a direct relationship to your company, like customers, end users, and suppliers. Even though external stakeholders are outside your organization, your project still impacts them in some way. For example, ramping up a manufacturing project would require additional resources from suppliers. 

Main differences between shareholders and stakeholders

The terms shareholder and stakeholder are often used interchangeably, but they’re actually very different. Aside from the contrasting definitions we’ve outlined above, shareholders and stakeholders are separated by these key differences: 

Different priorities

Shareholders and stakeholders have very different priorities. Shareholders have a financial interest in your company because they want to get the best return on their investment, usually in the form of dividends or stock appreciation. That means their first priority is usually to bolster overall revenue and stock prices. Shareholders of private companies and sole proprietorships can also be responsible for the company’s debts, which gives them an extra financial incentive. 

On the other hand, stakeholders are focused on much more than just finances. Internal stakeholders want their projects to succeed so the company can do well overall—plus they want to be treated well and advance in their roles. External stakeholders also want to benefit from your project. That can mean different things, like receiving a great product, experiencing solid customer service, or participating in a respectful and mutually beneficial partnership.

Different timelines 

Shareholders and stakeholders also have different timelines for achieving their goals. Shareholders are part owners of the company only as long as they own stock, so they’re usually focused more on short-term goals that influence a company’s share prices. That means your organization’s long-term success isn’t always their top priority, because they can easily sell their stocks and buy shares from another company if they want to. 

Alternatively, stakeholders are more interested in your company’s longer term goals . They’re usually less focused on short-term economic performance and fluctuations in stock prices. Instead, stakeholders want your organization to do well overall. For example: 

Employees want to keep working at a company that treats them well and gives them opportunities for growth. 

Customers want to keep receiving a product they like. 

Suppliers want to maintain their relationship with your company and keep profiting from your business long-term. 

Who’s more important: Shareholders or stakeholders? 

This is a longstanding debate among business analysts—whether companies should focus primarily on making more profits for their shareholders, or focus on benefiting all of their stakeholders (including customers, suppliers, employees, and the community). The debate is divided into two main schools of thought: 

Shareholder theory

Shareholder theory was first introduced in the 1960s by economist Milton Friedman . According to Friedman, a company should focus primarily on creating wealth for its shareholders. He argues that decisions about social responsibility (like how to treat employees and customers) rest on the shoulders of shareholders rather than company executives. Since company executives are essentially employees of the shareholders, they’re not obligated to any social responsibilities unless shareholders decide they should be. 

Stakeholder theory

Stakeholder theory was first introduced in 1984 by a business professor named Dr. R. Edward Freeman . According to Freeman, companies should focus on creating wealth for all their stakeholders, not just shareholders. He argues that there are interconnected relationships between a business and its customers, suppliers, employees, investors, and the local community. For example:

You want customers to be satisfied with your product and your company so they keep buying from you. 

You want employees to be happy and motivated at work so they can bring their full energy and creativity to the table. 

You want to help your financiers, partners, and shareholders make a profit so you can keep your investors and get more opportunities for growth. 

Why you should prioritize stakeholder theory

Shareholders are important for your company, but as a project lead or program manager you should really prioritize stakeholder theory. That’s because shareholders are usually most concerned with short-term goals that impact stock prices, rather than the long-term health of your company. If you prioritize short-term wins and revenue gains over everything else, you might sacrifice your company culture, business relationships, and customer satisfaction in the process. 

On the other hand, stakeholder theory helps you act responsibly towards your employees, customers, and business partners. By prioritizing your immediate project stakeholders (both internal and external), you can create better work environments that promote both employee well-being and customer satisfaction. And when your team feels heard, they’re more motivated to do their best work and help projects succeed. Research shows that only 15% of workers feel completely heard by their organization, but stakeholder theory can help you boost that number and build sustainable and healthy relationships with all of your employees and partners. That means instead of aiming for quick wins, you’re investing in your future. 

Stakeholder management, simplified

Most people work with stakeholders on a day-to-day basis, but they rarely encounter company shareholders. Stakeholders help you get work done and achieve your project goals, so it’s important to have a way to manage relationships, coordinate work, and keep stakeholders in the loop. 

A project management tool can help simplify the stakeholder management process. For example, Asana lets you create and assign tasks with clear due dates, comment directly on tasks, organize work into shareable projects, and send out automated status updates. That way, you can give stakeholders the information they need, when they need it. 

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What’s the Difference Between Stakeholders and Shareholders?

They’re not the same thing—find out how to tell them apart

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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

Varied interests.

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.”

Key Takeaways

  • 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.

Business Roundtable. " Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans. " Accessed June 24, 2021.

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The Difference Between Shareholders and Stakeholders

  • by Gabriella Mangham on March 11, 2024
  • last update on March 11, 2024
  • Reading Time: 4 minutes

use the case study to distinguish between shareholders and stakeholders

All companies have stakeholders – and most have shareholders. Despite how central these terms are to business, many of us don’t actually know what they mean. Shareholder and stakeholder have very different definitions that impact everyone in the world.

Under some definitions, you are already a stakeholder in the world’s largest corporations.

Shareholders own financial stock in the company and so are interested in its economic success. Conversely, stakeholders have other concerns that are affected by the company’s practices. These ‘stakes’ might be economic, social, political or environmental.

It’s possible for someone to be a shareholder and a stakeholder at the same time! Read on to find out more about the difference in practice:

What Is A Shareholder?

A shareholder is someone who owns shares in the company. This can be an individual, company, or institution. Once they have invested in shares, they are a partial owner of the company and are represented by the board of directors. A shareholder has invested money and wants the company to succeed for financial reasons.

Shareholders have been at the centre of trade for many years. The Friedman Doctrine, or  ‘shareholder theory’ , was the guiding principle in business until very recently.

Back in 1970, Friedman argued the  CEO  is employed by the shareholders to make a profit. As a result, it is generally better for them to stick to making money and let their clients choose how to spend it.

However, this view has become less common over time. In the 21st century, there is less emphasis on shareholder finance than there was in the 20th. Many believe the ‘purpose’ of a business should be more than increasing profits (although it is still important).

While shareholders do have a financial interest in the company, they are not too committed in the longer term. They may not be that attached to the values of a company (especially if they own shares in multiple others). They are also able to sell their shares in line with changes in the stock price and move on.

Unless the company is private or owned by an individual, shareholders are generally not responsible for its debts. This means their desire for the company’s success can be traded away.

What Is A Stakeholder?

In comparison to shareholders, stakeholders represent a much broader group. The term includes anyone who has a ‘stake’ in the organisation, or is impacted by the actions of the company.

Shareholders are one type of internal stakeholder, as they are affected by the company’s performance and profitability. However, there are other types of stakeholder including employees, clients and suppliers of the company.

One key stakeholder in a company is the  CEO  whose income and reputation both depend on their success. They may step down, but they will still be linked to the company for some time after they have moved on.

In recent times, the definition of stakeholder includes an even wider group. This is because companies are increasingly led by  Corporate Social Responsibility  (CSR) concerns.

With such a broad view, stakeholders include anyone affected by the company’s environmental and social decisions. This may be local (such as a company’s contribution to the local community) or global (such as a company’s pollution targets).

For this reason, we could all be seen as stakeholders to the world’s largest companies as we all have a vested interest in their practices.

The idea that stakeholders are a key part of business is increasingly common. Moving on from Milton Friedman’s ‘shareholder theory’, Edward Freeman promoted  ‘stakeholder theory’ .The similar names are deceptive as these are opposites.

With his book on stakeholder theory, Freeman argued a company’s main responsibility is to the  stakeholders . This means companies exist for more than making a profit. They must also pay attention to  ESG  concerns.

In 2019, Business Roundtable declared for the first time that they would  put stakeholders first . The group includes many high-profile CEOs including Jeff Bezos of Amazon and Tim Cook of Apple. Before this statement, they had vocally prioritised shareholders since 1997.

Unlike shareholders, some stakeholders are committed long-term to the company. They sometimes don’t even have the choice about whether to be involved. For example, communities impacted by the actions of a company do not always ‘opt in’.

What Are The Key differences?

We’ve made a handy table to help you remember the difference:

In short, shareholders have a financial interest in the company, while stakeholders are driven by a wider range of concerns. Given the broad meaning of ‘stakeholder’, it could be argued that we are all stakeholders to every corporation in the world. Whether you prioritise shareholders or stakeholders depends on many factors, but it is always important to know the ethos of your company.

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Paying attention to the needs of shareholders and stakeholders requires streamlined communication. A  Board Portal  like Convene can help you support your shareholders and stakeholders by improving your organisation’s internal processes.

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Stakeholder v Shareholder Concept

Last updated 9 Aug 2019

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The stakeholder concept argues that businesses should take account of its responsibilities to stakeholders rather than just focus on shareholders.

Reminder: The Difference Between Stakeholders and Shareholders

A stakeholder is any individual or organisation who has a vested interest in the activities and decision making of a business.

A shareholder is an owner of a company.

So stakeholders include shareholders, but also a wider range of individuals and organisations.

Stakeholders:

•Have an interest in the business – but do not own it •May work for (employees) or otherwise transact with the business

Shareholders:

•Own the business •May also work in the business •Benefit directly from increases in the value of the business

The Stakeholder Concept

In essence, the stakeholder concept argues that the purpose of a business is to create value for stakeholders not just shareholders.

Business needs to consider customers, suppliers, employees, communities as well as shareholders.

In order to succeed and be sustainable over time, business management must keep the interests of customers, suppliers, employees, communities and shareholders aligned and going in the same direction .

The Shareholder Concept

The shareholder concept approach argues that it is the primary responsibility of businesses to act in the interest of its owners - the shareholders. So, decisions should be taken based on the effect of those decisions on shareholders rather than the wider stakeholder groups.

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Shareholder vs Stakeholder: What's the Difference?

Jay Fuchs

Published: February 13, 2024

A wide range of people can impact or influence a business‘s operations, corporate governance, goal-setting, and other key elements that dictate its performance — and keeping track of who’s who in all of that can be tricky. One of the big questions on that front is, “What's a shareholder versus a stakeholder?”

use the case study to distinguish between shareholders and stakeholders

It‘s a topic that can trip anyone up, and as you explore each concept more in-depth, you’ll find that there are a lot of layers to each subject. So, to help you get a better sense of what shareholders and stakeholders are and how they differ, I've put together this handy guide.

Read on if you want some clarity on the distinctions between the two entities, the various kinds of shareholders and stakeholders that exist, a breakdown of each side's role in impacting business outcomes, some perspective on which one is most important, and a brief detour about the role professional wrestling has played in shaping my life both personally and financially (I swear to God that last one actually adds value to this post.)

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Table of Contents

Shareholder vs. Stakeholder

What is a shareholder, the role of a shareholder, what is a stakeholder, the role of a stakeholder, which is more important: stakeholders or shareholders.

If you don't have time to dig into the nuances of what stakeholders and shareholders are, I totally get it. You (probably a stakeholder and/or shareholder at one or more organizations, yourself) have a busy schedule.

If that's the case, let me give you a quick rundown on the subject — supported by this super cool graphic I made. Here we go.

Stakeholder versus shareholder — what's the difference? Here are the key points.

  • A shareholder of a company is a partial owner of that business — someone who likely purchased stock to “hold a share” of that organization.
  • A company stakeholder is any individual or group who contributes to or is impacted by the success of that business — someone who “has a stake” in how the business performs, including shareholders.

Now, check out that graphic I just mentioned:

a graphic that details the differences between shareholders versus stakeholders

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The term “the role of a shareholder” is tough to pin down — mostly because there‘s more than one type of shareholder. The two most common of which are "common" and "preferred." Here’s a picture of both kinds, their unique characteristics, and what they do.

Types of Shareholders

Common shareholders.

In most cases, the term “shareholders” refers to common shareholders. Common shareholders are (typically ordinary) individuals who buy common stock — usually available on a stock exchange. For their purchase, they're awarded certain benefits, entrusted with key responsibilities, and assume some risks. For instance:

  • They receive dividends — regularly paid distributions of company profits — for their investments.
  • They often get to vote on decisions related to certain personnel and broader company direction.
  • They're last to receive payments from the proceeds if the company declares bankruptcy.

When I was nine years old, I loved professional wrestling. It was my favorite thing in the world — even now, I can still rattle off enough trivia about early-to-mid-2000s WWE storylines to make people both marginally entertained and visibly uncomfortable.

Anyway, for my 10th birthday, my grandfather bought me five shares of WWE stock to offer me some lessons about financial responsibility (while indulging my interest in what is essentially a violent soap opera where everyone wears costumes) — making me a common shareholder of the most electrifying brand in sports entertainment.

For the past 20 years, I‘ve received around 60 cents in annual dividends from the WWE. And in May 2023, I got to participate in the company’s annual meeting — where I got to vote on key action items like confirming the WWE‘s board of directors and approving the company’s executive compensation.

And if you think I'm kidding about all of this, check this out.

evidence that i own wwe stock to show what being a common shareholder is like

That‘s an actual screenshot from my email. I really am a common shareholder of the foremost "performance art that has significant crossover appeal with Monster energy drink" brand on Earth. It’s okay to be impressed.

But as I said, “common” isn‘t the only kind of shareholder. Let’s take a closer look at the other side of the shareholder token — preferred shareholders.

Preferred Shareholders

Preferred shareholders are both prioritized and limited by the companies they have stock in. Preferred stocks tend to be more lucrative than common stock, but they offer preferred shareholders less influence over a business's corporate governance. In short:

  • Preferred shareholders have higher claims on distributions and, in turn, receive higher dividends.
  • They have a greater claim on a company's assets in the event of a liquidation.
  • They have no voting rights.

Now that you have a sense of what shareholders are and the types of stock they own, we're going to dive into the other half of this topic — stakeholders.

The term ‘stakeholder’ is a catchall that encompasses every individual or group with a vested interest in and impact on (otherwise known as a stake) how an organization performs. Shareholders, employees, customers, and suppliers can all be considered stakeholders for a business — among other entities.

As I mentioned exactly one sentence ago, shareholders are technically also stakeholders in the business. They have a bearing on how a company performs and a definitive interest in seeing to it that it thrives.

Let's take a closer look at the roles various stakeholders can play in a business context.

I said it earlier, but I‘ll reiterate: "Stakeholder" is a pretty broad term, so the "role" of a stakeholder varies pretty considerably from entity to entity. For instance, a customer’s role in a company‘s success isn’t going to be the same as an employee's.

Ultimately, everyone who can be considered a stakeholder at a business is united by the fact that they both influence and are impacted by how a business performs — so while their roles may vary, they all have a personal stake in seeing to it that the company they're working with or for does well.

Here are some of the various kinds of stakeholders a company can have.

Types of Stakeholders

Internal stakeholders.

Internal stakeholders are stakeholders that work within a business. They can include:

  • Boards of directors
  • Shareholders

External Stakeholders

External stakeholders are those who are interested or directly impacted by the success of a business — without immediate influence over or direct internal contributions to that business's projects and initiatives. They can include:

  • Communities
  • Government agencies

Primary Stakeholders

Primary stakeholders are those who most directly impact business outcomes and, in turn, are often most closely impacted by how that business performs. They can include:

Secondary Stakeholders

Secondary stakeholders are entities that have an interest in how a business performs and can impact or influence its operations more indirectly. They can include:

  • Community groups

So who‘s more important: stakeholders or shareholders? Well, that’s honestly a pretty hotly contested topic. There are two main camps, each subscribing to a different “theory” on the issue — stakeholder theory and shareholder theory. Both theories are staples in the field of business ethics, and they primarily revolve around where a company's social and financial responsibilities lie.

Let's take a closer look at each.

What is shareholder theory?

Shareholder theory, also known as the Friedman doctrine, rests on the notion that businesses' first (and only) responsibility is to maximize shareholder profits. Milton Friedman, the economist behind this theory, asserted that a given company has no responsibility to the public or society at large — just its shareholders.

In turn, businesses should do everything in their power to advance the interests of the people who own it, without regard for broader social responsibility. The theory dictates that actions like making charitable donations and pursuing socially conscious endeavors are up to individuals — and in a corporate context, taking those kinds of strides essentially amounts to executives spending their employers' money without their consent.

What is stakeholder theory?

Stakeholder theory, as you might imagine, is a doctrine that emphasizes that organizations should prioritize the interests of all their stakeholders — both internal and external — as opposed to just the profits of shareholders.

It argues that businesses have a responsibility to create value for everyone who relies on them — including their customers, employees, suppliers, impacted communities, and shareholders. The theory postulates that organizations should work for all of those entities and, in doing so, will achieve lasting, sustainable success.

Stakeholder Theory vs. Shareholder Theory

I‘m going to preface this section by saying I’m not an economist and I don‘t have a background in business ethics. I also want to stress that this is very much my perspective on the issue — I’m not speaking on HubSpot‘s behalf. But based on my (admittedly limited) understanding of these two theories and the research I’ve seen, I would say I err on the side of stakeholder theory being the way to go.

Shareholder wealth maximization is the cornerstone of shareholder theory. The theory asserts that generating as much money as possible for shareholders is both beneficial for business and should be any company leadership's primary responsibility.

And in theory, that does kind of make sense. Hypothetically, shareholder theory offers benefits like minimizing ambiguity in goal-setting by aligning the entire company with the financial interests of a single group and improving manager accountability by not letting company leaders pursue personal agendas or self-interest with company resources.

But there‘s almost always a gap between theory and practice in every facet of life and business, and in this case, shareholder theory’s "gap" has had some disastrous repercussions — specifically when it came to the role financial institutions played in the context of the 2007-2008 financial crisis.

A study from ECSP Europe found that while shareholder theory is sound in the abstract, “some executives following this theory could have brought disrepute to it” in the leadup to the Great Recession. It could be argued that shareholder theory doesn't fully account for greed or human fallibility, and both of those came into play in the leadup to the financial crisis — so much so that it may have undermined the theory itself.

That said, I do need to mention that the researchers from that study also said that stakeholder theory is more ambiguously defined than shareholder theory and, in turn, more “difficult to become operational in practical business settings.”

However, another study from The Eastern Institute of Technology in New Zealand found that “unethical behavior, agency issues, CEO compensation, creative accounting, and risk shifting are some of the side effects of [shareholder wealth maximization],” and that, “[it] can be argued that the root cause of the [global financial crisis] was excessive greed and the single-minded pursuit of shareholder wealth maximization.”

All of that to say, while stakeholder theory is a more amorphous concept than shareholder theory, there's research to indicate that shareholder theory can have brutal consequences when applied irresponsibly or too unilaterally. And it might be cynical (but also kind of universally agreed upon), but I don't trust absolutely everyone in corporate leadership to be responsible when exercising their power.

Again, I need to clarify that I'm not an economist or a business ethicist — so please take my perspective with a grain of salt, and get mad at me and me alone if you disagree with this take.

Back to the question: Are stakeholders or shareholders more important?

Ultimately, in my (as I keep stressing) non-economist with no background in business ethics opinion, I would say there's research that might suggest that stakeholders are more important — specifically because of how shareholder theory may have been problematic in the lead-up to the Great Recession.

And from a personal ethics perspective, I do believe that a company's responsibility extends beyond shareholder profits to broader social wellbeing — even if that sometimes comes at the expense of definitive organizational alignment or preventing management from using company resources for personal interests.

Also, on a more surface level, shareholders are still stakeholders, so a company‘s leadership generally won’t ignore their interests if they look out for everyone who relies on their performance.

So there you have it: a comprehensive guide on shareholders, stakeholders, and the distinctions between the two. I hope it cleared any confusion you might have had about the subject — and I really hope the professional wrestling stuff I placed in this post actually helped shape your understanding of these concepts. I promised it would in the intro, so if nothing else, I better have delivered on that.

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The stakeholder theorists smell blood. Scandals at Enron, Global Crossing, ImClone, Tyco International and WorldCom, concerns about the independence of accountants who are charged with auditing financial statements, and questions about the incentive schema and investor recommendations at Credit Suisse First Boston and Merrill Lynch have all provided rich fodder for those who question the premise of shareholder supremacy. Many observers have claimed that these scandals serve as evidence of the failure of the shareholder theory — that managers primarily have a duty to maximize shareholder returns — and the victory of stakeholder theory, which says that a manager’s duty is to balance the shareholders’ financial interests against the interests of other stakeholders such as employees, customers and the local community, even if it reduces shareholder returns. Before attempting to declare a victor, however, it is helpful to consider what the two theories actually say and what they do not say.

Both the shareholder 1 and stakeholder theories are normative theories of corporate social responsibility, dictating what a corporation’s role ought to be. By extension, they can also be seen as normative theories of business ethics, since executives and managers of a corporation should make decisions according to the “right” theory. Unfortunately, the two theories are very much at odds regarding what is “right.”

Shareholder theory asserts that shareholders advance capital to a company’s managers, who are supposed to spend corporate funds only in ways that have been authorized by the shareholders. As Milton Friedman wrote, “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it … engages in open and free competition, without deception or fraud.” 2

On the other hand, stakeholder theory 3 asserts that managers have a duty to both the corporation’s shareholders and “individuals and constituencies that contribute, either voluntarily or involuntarily, to [a company’s] wealth-creating capacity and activities, and who are therefore its potential beneficiaries and/or risk bearers.” 4 Although there is some debate regarding which stakeholders deserve consideration, a widely accepted interpretation refers to shareholders, customers, employees, suppliers and the local community. 5 According to the stakeholder theory, managers are agents of all stakeholders and have two responsibilities: to ensure that the ethical rights of no stakeholder are violated 6 and to balance the legitimate interests of the stakeholders when making decisions. The objective is to balance profit maximization with the long-term ability of the corporation to remain a going concern.

The fundamental distinction is that the stakeholder theory demands that interests of all stakeholders be considered even if it reduces company profitability. In other words, under the shareholder theory, nonshareholders can be viewed as “means” to the “ends” of profitability; under the stakeholder theory, the interests of many nonshareholders are also viewed as “ends.” 7

Unfortunately, shareholder theory is often misrepresented in several ways. First, it is sometimes misstated as urging managers to “do anything you can to make a profit,” even though the shareholder theory obligates managers to increase profits only through legal, nondeceptive means. 8 Second, some criticize the shareholder theory as geared toward short-term profit maximization at the expense of the long run. However, more thoughtful shareholder theorists often refer to a need for “enlightened self-interest,” which — if embraced — would lead a corporation’s managers to take a long-term orientation. Third, it is sometimes claimed that the shareholder theory prohibits giving corporate funds to things such as charitable projects or investing in improved employee morale. In fact, however, the shareholder theory supports those efforts — insofar as those initiatives are, in the end, the best investments of capital that are available. 9

Similarly, the stakeholder theory is sometimes misunderstood. It is sometimes claimed that the stakeholder theory does not demand that a company focus on profitability. Even though the stakeholder theory’s ultimate objective is the concern’s continued existence, it must be achieved by balancing the interests of all stakeholders, including the shareholders, whose interests are usually addressed through profits.

Also, because many stakeholder theory descriptions provide no formula for adjudicating among the stakeholders’ disparate interests, some have claimed that the theory cannot be implemented. While it is true that some versions of the theory provide no guidance in this regard, many stakeholder theorists have provided algorithms for trade-offs among stakeholders’ interests. For example, one might assess the level of risk that each stakeholder has embraced and rank their interests accordingly, or one might simply assert that one stakeholder group’s interests should always prevail, as Richard Ellsworth has recently argued. 10

Has There Always Been a Dispute?

As many observers have pointed out, the stakeholder view does have a historical tradition in the U.S. economic system. Historically, argued John Cassidy in the New Yorker, “Many chief executives saw their main task as overseeing the welfare of their employees and customers. As long as the firm made a decent profit every year and raised the dividend it paid its stockholders, this was considered good enough.” 11 But it is also clear that, in the past two decades, expectations have shifted, driven by two forces.

One force was the pointed arguments of free-market economists. In a widely cited 1970 article, Milton Friedman argued that the fundamental obligation of managers is to return profits to shareholders — not to invest corporate funds in endeavors that they find socially beneficial but that reduce shareholders’ returns. 12 In 1976, Michael Jensen and William Meckling explored the notion of “principal-agent” conflicts, arguing that executives often fail to maximize profits unless the shareholders invested their time and money in creating appropriate incentives to do so and monitored the resulting behavior. 13 That suggestion, and others that followed, heightened investor awareness that many managers might not be maximizing profits.

Second, and probably related to the growth of the “principal-agent” arguments, many corporate raiders during the 1980s bought stock of companies they considered undervalued, jettisoned the existing management and often dismantled the companies. There is scant evidence that such takeovers (sometimes subsumed under the rubric of “market discipline”) lead to long-term gains for those who finance them. However, the prospect of such takeovers seemed to have made it, for a time, more dangerous for executives to acknowledge publicly anything other than the shareholder theory 14 or to behave in any fashion that could suggest a nonoptimal return to shareholders. 15

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To be sure, many would prefer that the shareholder-stakeholder dispute simply go away. In particular, many shareholder theory advocates are quick to claim that the theories actually converge, that our society’s norms clearly favor the shareholder theory or that market forces and the law leave one no choice but to embrace that theory. However, none of these assertions can withstand logical scrutiny.

First, consider the assertion that the theories converge — that if managers take care of the stakeholders, they will wind up maximizing profits and shareholder returns in the long run. In that vein, one thoughtful treatise recently argued that stakeholder relationships are not a “zero-sum game” (that is, anything gained by employees comes out of the pockets of investors or customers) but a mutually reinforcing, interactive network. 16 However, that is clearly not the case in all situations.

Consider a business with many long-term employees that has manufactured its products for more than 30 years in a small Mid-western town. Those products have been sold in many foreign markets — but for the past 10 years, not in the United States. Its executives have recently concluded that they can no longer afford to manufacture the products domestically, and the most cost-effective solution is to outsource the manufacturing to another country. The shareholder theory would support closing the plant and would direct the executives to provide only what the law requires to the community and the employees, since there is little possibility of a backlash against the company due to a plant closing (because the products are solely for export). To expend any corporate funds on retraining affected employees or on contributions to the community would be a waste of shareholders’ money, since the investments would never be returned. However, the stakeholder theory would infer a normative obligation to both the community and the employees; while it might not demand that the company continue to operate the plant, it would expect some attempt to retrain the employees, help the community attract new industry and so on. Obviously, these efforts would reduce the concern’s profitability, but the stakeholder theory would not support a “cut and run” approach to the situation.

That example and many others like it show that reasonable applications of the theories will sometimes yield different normative obligations on managers’ parts. To claim that the theories converge requires that one assume that actions in favor of stakeholders ultimately resonate positively to the bottom line and/or actions against stakeholders are eventually punished on the bottom line. In many cases, though, the linkage between such actions and the profit and loss statement is either nonexistent or so indirect as to strain credulity. The stakeholder theory demands that stakeholder interests be considered as an end in themselves. If stakeholder interests are being considered only as a means to the end of profitability, then managers are using stakeholders to effect the results dictated by the shareholder theory. These are two very different concepts.

Second, consider the assertion that U.S. society’s norms clearly align with the shareholder theory. To be sure, most U.S. economists and those closely associated with the financial markets accept the shareholder theory’s premises unquestionably, and the nation’s business schools have seemingly embraced the shareholder mantra. However, it is startling to note that there is evidence that public perceptions may not comport with those of economists and the financial community.

Perhaps the most telling data regarding perceived societal norms are found in a long-term research study, in which researchers surveyed 15,000 managers from various countries selected “from the ‘upper-middle’ ranks of management” to attend international management seminars over an eight-year period. The researchers asked the managers whether they thought the majority of their fellow citizens felt that a company’s only goal was profit, or if they thought that companies were also responsible for the well-being of various stakeholders. (Note that the study did not ask the managers about their own views on the question.)

Interestingly, 40% of U.S. managers chose the former response — the highest percentage of any country in the study. 17 It seems likely that these managerial perceptions represent solid evidence of a disconnection between the views of free-market economists and those of the rest of the general population.

Finally, consider the assertion that companies have no choice but to follow the shareholder theory, on the basis of law and market forces. Although some people claim that U.S. law respects the supremacy of shareholder interests (and, therefore, that a concern’s directors are liable for any decisions that go against such interests), analysis of legal statutes does not, in the main, support that assertion. Jay Lorsch states that two principles form the nexus of directors’ legal responsibilities: a duty of care and a duty of loyalty. The duty of care simply means that directors should gather necessary information before making decisions; the duty of loyalty means that directors should be careful to act appropriately when there are conflicts of interest. 18 As noted by Richard Ellsworth, “As long as directors fulfill their dual duties of care and loyalty, courts do not challenge their decisions,” 19 even if they are made according to the stakeholder theory. More specifically, in at least 38 states, there are now “‘stakeholder’ laws, which permit (or even require) directors to consider the impact of their actions on constituencies other than shareholders.” 20 In addition, courts in Delaware — where the majority of large U.S. corporations are incorporated and where laws are largely consistent with the shareholder theory — have begun “to liberalize their interpretation of the state’s laws.” 21 Indeed, professors Margaret Blair of George-town University Law Center and Lynn Stout of the University of California at Los Angeles have recently concluded that, legally speaking, a board of directors in the United States is “not a policeman employed by shareholders but a neutral umpire for all involved.” 22 According to Blair, “We have a director primacy model in this country, not a shareholder primacy model.” 23

But even if the law cannot be counted on to enforce the shareholder theory, economic forces, it is claimed, will drive managers to embrace it. One obvious way in which this can be done is for the board of directors to dismiss senior executives who do not maximize profitability. However, research indicates that the forced departure of executives who do not maximize profits is by no means assured, showing it to be more likely when there is an outsider-dominated rather than an insider-dominated board. 24 The probability of such dismissal differs over time for an executive: For a similarly weak performance, a CEO is two to three times more likely to be dismissed during the first four years on the job or after having been on the job 10 years or more than in the period in between. 25 In short, one can hardly count on the thesis that states that the “board of directors will remove non-profit-maximizing managers” to hold uniformly.

However, based on economic theory, there is still a way in which managers who do not maximize profits, and whose boards do not remove them, will wind up unemployed: The company’s underperformance will be noted in the marketplace, the company will be subjected to a hostile takeover, and the board and the managers will be replaced. Some have argued that the large number of mergers and acquisitions in the late 1990s provides evidence that this assumption is accurate. However, the bulk of these M&As were not grounded in removal of existing managers due to suboptimal profitability, as would normally be the case in hostile takeovers. The fact that there are many M&As (or, for that matter, hostile takeovers) does not, in and of itself, tell us whether the “disciplinary” market control is working.

In fact, a seminal study by Julian Franks and Colin Mayer concluded that we cannot rely on hostile takeovers to perform such a disciplinary function. They noted that high bid premiums are associated with hostile bids, but found no evidence that these bids are driven by management’s delivery of suboptimal profits relative to others in the same industry. 26 Of course, one can never know exactly how far below the maximal profit threshold a company is performing (after all, it is possible that all the businesses in an industry could be suboptimizing). But since Franks and Mayer found that hostile bidders do not even distinguish significantly between the companies within an industry, we should view predictions that the market will punish managers who do not follow the shareholder theory more as a statement of religious conviction than as an empirical observation that has withstood rigorous scrutiny.

In sum, despite the attempt by some observers to “make the dispute go away,” the facts remain that the theories demand very different things; that perceptions of U.S. norms across the broad society are likely more suggestive of a stakeholder than of a shareholder orientation; and that neither legal nor marketplace mechanisms can be relied on to enforce the shareholder theory in a uniform fashion. Therefore, the dispute seems to be with us for the time being and the suggestions that recent financial scandals prove the failure of the shareholder theory deserve careful scrutiny before they can be accepted.

Whither the Shareholder Theory?

The year 2002 saw a good deal of corporate executive behavior that was at best disruptive to the free flow of commerce and, at worst, illegal. Few would dispute that such behavior should be discouraged rather than rewarded. The real question, of course, is whether the shareholder theory prescribes, and therefore rewards, behaviors that are actually detrimental to society.

Many of the more strident critics of shareholder theory seem to claim that as executives are charged with maximizing shareholder value and are given large incentives to do so through stock options or other schema, they will respond by embracing whatever manipulations are necessary to achieve that goal. It is further suggested that if those manipulations include setting up illegal partnerships and then shredding incriminating evidence, shareholder theory will encourage the behavior, as long as the executives do not get caught. Since society deems these behaviors reprehensible and since it is suggested that the shareholder theory drove executives to behave that way, these commentators conclude that the theory is bankrupt and must be jettisoned.

The argument relies, however, on an incomplete and somewhat misrepresentative interpretation of the shareholder theory. First, while the mantra of maximizing shareholder value was indeed chanted by many in the economic and financial communities in the late 1990s until the scandals hit in 2002, it is not at all clear that such a goal is completely consistent with the intent of the shareholder theory. It must be remembered that shareholders get a return from their invested capital in two different ways: through dividends paid out by the corporation and through increased share prices. If we return to the most often cited and most accessible statement of the shareholder theory, Milton Friedman’s 1970 essay “The Social Responsibility of Business Is To Increase Its Profits,” it becomes apparent that the shareholder theory spoke more to increasing dividends through profitability than to increasing share price in a (possibly irrational) stock market. Yet those who criticize the mantra of maximized shareholder value seem to be most disturbed by the recent fixation on market returns, which the theory never viewed as the primary end state to begin with.

Second, the argument seems to suggest that the shareholder theory prescribes any action in pursuit of shareholder returns. But the theory clearly dictates that the pursuit of profits should be done legally and without deception, and there is little wiggle room for the kinds of overtly illegal behavior alleged in many recent financial scandals. Thus, the executives who broke the law were not operating according to the shareholder theory.

Third, it must be remembered that many of the executives undertook actions that, from all outward appearances, were more for their own benefit than for that of the shareholders. For example, Enron Corp. CFO Andrew Fastow, who created a partnership that was bankrolled with Enron stock and populated with very risky ventures, “stood to make millions quickly, in fees and profits, even if Enron lost money on the deal,” according to the Washington Post. Actually, Enron lost more than $500 million from these initiatives and entered bankruptcy. 27 Similarly, several other executives, including Kenneth Lay of Enron, Garry Winnick of Global Crossing Holdings Ltd. and Scott Sullivan of WorldCom Inc., also benefited from bonuses and stock options at the same time that their companies’ shareholders were suffering. In fact, the shareholder theory finds such behavior inexcusable, since the basic premise of the theory is that executives should act only in the shareholders’ interests and not in their own.

Thus, the strident line of argument does not appear terribly compelling, since it seems to misinterpret the shareholder theory even as it indicts the theory. However, others who also argue that recent financial scandals augur a move to the stakeholder theory take a less hostile, more compelling tack. While they accept that much of the recent bad behavior was grounded in human weakness and not inherent in the shareholder theory, they contend that if society embraced the stakeholder theory, executives would develop an innate self-correcting mechanism that would temper tendencies to act in a manner that ignores certain stakeholders’ interests. If U.S. society entered an era in which the only “politically correct” perspective was that of the stakeholder theory, it is likely that executives would shift their language to include references to stakeholders’ interests. Over a period of time, if psychological theories are to be believed, managers’ behaviors, and then their true attitudes, would also begin to shift toward the stakeholder theory. That argument is more compelling.

In this context, we can see that the dispute between the shareholder and stakeholder theories in the United States, in which it appeared for several years that the shareholder theory was emerging as a victor, is now best viewed as a standoff. The stakeholder theory may have a slight edge, because the shareholder theory’s less-strident critics do have a logically defensible argument and because the strident argument that the shareholder theory encourages bad behavior, while not logically defensible, has emotional resonance with many people. Rightly or wrongly, the theory is being tarnished by association. Still, even if one generously concedes that many recent linkages of executive misbehavior to the theory are misplaced, it is hard to claim that the shareholder theory has done anything to help the situation.

What Are Executives and Boards To Do?

Against this backdrop, U.S. executives and board members might reasonably ask what they should do differently. First, executives should consider changing their language, getting rid of the phrase “maximizing shareholder value.” Indeed, many of the most ardent supporters of the shareholder theory have quietly shifted to “maximizing our company’s value” and other similar phrases. An even more temperate phrasing of the corporate objective would be “maximizing our company’s contribution to our economic system.”

Second, executives should feel freer to change their attitudes and behaviors openly. If a CEO or board member’s only reason for not verbalizing a belief in the stakeholder theory was a fear of takeover, it is likely that such pressures will abate given the increasing evidence that the “market discipline” of takeovers during the last few years has proven less than efficient in maximizing returns. Assuming that a CEO’s board approves, the CEO should be able to operate freely under either theory for the foreseeable future.

Third, whichever theory is embraced, executives need to be clear about the choice in organizational communications. If midlevel managers are confused about the corporation’s objectives, they will likely make inconsistent decisions, probably by relying on their own normative beliefs about the appropriate theory. Richard Ellsworth has suggested a six-step series of “challenge-sessions” in which executives work through their collective attitudes toward the company’s stakeholder obligations and priorities and then take overt steps to communicate their conclusions throughout the organization. 28 An approach like his should at least provide a firm grounding upon which operational decisions can then be made.

About the Author

H. Jeff Smith is a professor of management at the Babcock Graduate School of Management at Wake Forest University in Winston-Salem, North Carolina. Contact him at [email protected].

1. The theory is sometimes called the “stockholder” theory, but the term “shareholder” is used here for consistency with recent usage in the media.

2. M. Friedman, “Capitalism and Freedom” (Chicago: University of Chicago Press, 1962), 133.

3. Note that I am considering only the normative version of the theory, which states how managers ought to behave. There are also descriptive versions of the stakeholder theory, which describe actual behavior of managers, and instrumental versions, which predict outcomes (for example, higher profits) if managers behave a certain way. These distinctions are drawn crisply in T.M. Jones and A.C. Wicks, “Convergent Stakeholder Theory,” Academy of Management Review 24, no. 2 (April 1999): 206–221.

4. J.E. Post, L.E. Preston and S. Sachs, “Managing the Extended Enterprise: The New Stakeholder View,” California Management Review 45, no. 1 (fall 2002): 5–28.

5. W.M. Evan and R.E. Freeman, “A Stakeholder Theory of the Modern Corporation: Kantian Capitalism,” in “Ethical Theory and Business,” 3rd ed., eds. T.L. Beauchamp and N.E. Bowie (Englewood Cliffs, New Jersey: Prentice-Hall, 1988), 97–106. It is to this version of the normative stakeholder theory that the following description refers. Note, however, that Post, Preston and Sachs, who take a more instrumental than normative view of stakeholder theory, embrace a wider enumeration of stakeholders, including regulatory authorities, governments and unions.

6. Note that these are ethical rights. They may or may not correspond to legal rights or to rights established by professional/industry codes and so on.

7. Some authors — for example, see J. Hasnas, “The Normative Theories of Business Ethics: A Guide for the Perplexed,” Business Ethics Quarterly 8, no. 1 (1998): 19–42 — view the “social contract” theory as providing a third, and differing, normative viewpoint that is at an equivalent level to the shareholder and stakeholder theories. However, the most recent writings by the leading proponents of the social contract theory — including T. Donaldson and T.W. Dunfee, “Ties That Bind: A Social Contracts Approach to Business Ethics” (Boston: Harvard Business School Press, 1999), see especially chapter 9 — instead seem to view the “social contracts” perspective as a meta-theory that provides guidance in sorting through the stakeholder obligations.

8. Friedman, “Capitalism and Freedom,” 56, 61.

9. N.E. Bowie and R.E. Freeman, “Ethics and Agency Theory: An Introduction” (Oxford, England: Oxford University Press, 1992), 3–21.

10. R.R. Ellsworth, “Leading With Purpose: The New Corporate Realities” (Stanford, California: Stanford University Press, 2002). Here, Ellsworth argues for the primacy of customers’ interests over those of other stakeholders.

11. J. Cassidy, “The Greed Cycle,” The New Yorker, Sept. 23, 2002, 64–77. Also see Cassidy for a thorough and accessible treatment of the factors driving the shift to a “shareholder value” perspective.

12. M. Friedman, “The Social Responsibility of Business Is To Increase Its Profits,” New York Times Magazine, Sunday, Sept. 13, 1970, sec. 6, p. 32.

13. M.C. Jensen and W.H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” Journal of Financial Economics 3 (October 1976): 305–360.

14. Cassidy, “The Greed Cycle.”

15. J. Magretta, “What Management Is: How It Works and Why It’s Everyone’s Business” (New York: Free Press, 2002), 30–33.

16. Post, “Managing the Extended Enterprise,” 18.

17. See C. Hampden-Turner and A. Trompenaars, “The Seven Cultures of Capitalism: Value Systems for Creating Wealth in the United States, Japan, Germany, France, Britain, Sweden and the Netherlands” (New York: Doubleday, 1993). The percentage of managers choosing the first option varied from lows of 8% (Japan) and 11% (Singapore) to highs of 34% (Canada), 35% (Australia) and 40% (the United States).

18. J.W. Lorsch, “Pawns or Potentates: The Reality of America’s Corporate Boards” (Boston: Harvard Business School Press, 1989), 7–8.

19. Ellsworth, “Leading with Purpose,” 348.

20. R.A.G. Monks and N. Minow, “Corporate Governance” (Cambridge, Massachusetts: Blackwell, 1995), 38.

21. Ellsworth, “Leading with Purpose,” 349.

22. S. London, “An Uprising Against Stock Arguments,” Financial Times, Tuesday, Aug. 20, 2002, p.10.

24. M.S. Weisbach, “Outside Directors and CEO Turnover,” Journal of Financial Economics 20 (March 1988): 431–460.

25. S. Allgood and K.A. Farrell, “The Effect of CEO Tenure on the Relation Between Firm Performance and Turnover,” Journal of Financial Research 23, no. 3 (fall 2000): 373–390.

26. J.R. Franks and C. Mayer, “Hostile Takeovers and the Correction of Managerial Failure,” Journal of Financial Economics 40, no. 1 (January 1996): 163–181.

27. P. Behr and A. Witt, “Visionary’s Dream Led to Risky Business,” Washington Post, Sunday, July 28, 2002, sec. A, p. 1.

28. Ellsworth, “Leading with Purpose,” 327–357.

Acknowledgments

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Stakeholders vs Shareholders: The Clash of Corporate Governance Models in Japan’s Fujitec Ltd. and Oasis Management Showdown

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While UK/US firms, in response to efforts to become more sustainable and contribute to the Sustainable Development Goals, increasingly have been adopting a stakeholder model of corporate governance, the shareholder model that has dominated governance for the past several decades still exerts a great deal of influence over how UK/US firms behave. By contrast, Japan’s traditional model, emphasising community and long-term stability, lacks transparency. Recently, Japanese firms have begun aligning with UK/US governance, but this paper suggests the emergence of diverse sub-models, combining both models’ elements, will define the future. The case of Fujitec Ltd. and Oasis Management offers valuable insights for managers, policymakers, and practitioners to navigate international corporate governance complexities, support informed decision-making, and encourage effective stakeholder engagement.

Introduction

Corporate governance is an essential aspect of managing a successful business, and there are various models that companies worldwide use to achieve their objectives. One of these models is the Japanese stakeholder-focused corporate governance model, which emphasises building relationships and considering all stakeholders’ interests, including employees, customers, and suppliers, rather than focusing only on shareholders. In contrast, the traditional Anglo-Saxon shareholder value-driven model, that prevails in the UK and the US, is based on shareholder primacy and emphasises maximising shareholder value above all else. This model prioritises increasing the market value of the company and shareholder returns, sometimes at the expense of other stakeholders.

The conflict between these two models is hardly a new one as it is the subject of many debates in both historical and modern contexts (Deakin , 2005; Gamble & Kelly , 2001; Vinten , 2001) . The stakeholder-focused model, considering factors like employees, suppliers, and the environment, promotes balanced growth and sustainability. In contrast, the shareholder-focused model primarily aims for immediate financial returns, potentially overlooking broader impacts.

The contrast between the two approaches was recently highlighted in the case of Fujitec Ltd. and Oasis Management, where the Hong Kong-based investment fund challenged the Japanese company’s governance structure and called for changes to maximise shareholder value.

In recent times, there has been an increasing call for a shift towards a more stakeholder-centric approach in corporate governance, aimed at counterbalancing the shareholder-oriented bias prevalent in the Anglo-Saxon model. On the other hand, Japan is working to modernise its traditional corporate governance structures by aligning them more closely with the Anglo-Saxon model, emphasising the enhancement of shareholder rights. The conflict between Fujitec Ltd. and Oasis Management exemplifies the tension arising from the clash of these two models, underlining the challenges that surface when they intersect.

It also provides clues about the potential resolution of the conflict in the form of a “conversion to diversities” (Aoki , 2010) or hybrid models. One that is emerging is “Japan’s Model 2.0” (Miyajima , 2021) in which the old traditional model is not abolished, but rather retrofitted to respond to challenges involving shareholders and broader stakeholders such as the reassessment of rent distribution.

Japanese Stakeholder-Focused Corporate Governance Model

The Japanese stakeholder-focused corporate governance model emphasises the interests of various stakeholders, originating from Japan’s post-WWII economic recovery. This bank-based, relationship-oriented system prioritises employees, customers, and suppliers, aligning with the “egalitarian concept and the preference for human capital providers over monetary capital providers” (Shishido , 2001: 661) .

Key features include industrial groups or keiretsu, led by a main bank that monitors and provides support. Keiretsu fosters interlocking directorships and cross-shareholdings, safeguarding against hostile takeovers and promoting long-term goals. Employees are central to this model, benefiting from high social security, lifetime employment, and seniority-based promotions. Insider boards of directors are common.

The stakeholder-focused model supports sustainable growth and social equality but faces drawbacks like slow decision-making due to the collaborative approach. This can limit companies’ adaptability and competitiveness. The focus on long-term planning may also hinder innovation and change. Furthermore, lifelong employment limits labour force mobility, posing challenges for those seeking career changes, especially middle-aged workers (Genda & Rebick , 2000) .

Anglo-Saxon Shareholder Value-Driven Model

The shareholder value-driven paradigm originates from Milton Friedman’s 1970 article (Friedman , 1970) , asserting that businesses should prioritise shareholder interests. The model based on this approach gained popularity in the US in the 1980s, advocating for shareholder-centric corporate governance to enhance financial performance and accountability (Jensen & Meckling , 1976; Lazonick & O’Sullivan , 2000) .

Key principles of this model include shareholder primacy, focusing on short-term financial gains like share buybacks, dividend payouts, and cost-cutting measures (Lazonick , 2014) . Executive remuneration is often tied to short-term financial performance indicators instead of long-term strategic objectives. Stakeholder engagement is limited, as the primary focus remains on catering to shareholder needs, reflecting the belief that corporate leadership’s primary fiduciary duty is to shareholders (Stout , 2012) .

The model’s narrow focus on shareholder interests can lead to employee disengagement, affecting productivity and organisational performance. Additionally, the prioritisation of shareholder returns exacerbates social inequality, as executive compensation structures reward short-term financial performance, widening income disparities (Bebchuk & Fried , 2003) . Limited stakeholder engagement may negatively impact employee engagement and loyalty, leading to potential backlash from disregarded stakeholder groups.

The focus on shareholder value maximisation may also compromise sustainability efforts, as organisations prioritise immediate financial gains over long-term environmental and social considerations (Zhao , Dilyard , & Rose , 2022) . This approach can result in negative externalities like environmental degradation and community harm, highlighting the need for a more responsible approach to value creation.

The Conflict between Fujitec Ltd. and Oasis Management

Fujitec, founded in 1948, is a Japanese multinational specialising in elevators, escalators, and moving walkways. With a global presence and a $1.9 billion market valuation, it is a leading manufacturer. Oasis Management, established in 2002 by Seth Fischer, is a Hong Kong-based investment firm focusing on value-oriented investments in Asia. Managing assets for pension funds, endowments, and family offices, Oasis employs an active investment strategy, targeting undervalued companies with growth potential and engaging with management to enhance shareholder value.

In 2022, Oasis Management acquired a 9.73% stake in Fujitec Ltd., later increasing to 16.52% by November, making them the leading shareholder. Oasis criticised Fujitec’s governance and ethics, urging improvements. Before Fujitec’s Annual General Meeting (AGM) in June 2022, Oasis questioned related-party transactions involving the Uchiyama family and opposed the reappointment of then-Chief Executive Officer (CEO) Takakazu Uchiyama. Although an internal inquiry found no substantial evidence, Fujitec withdrew Uchiyama’s candidacy before the meeting. Uchiyama later became chairman in order to mitigate potential business repercussions. The chairman is not supposed to be actively involved in day-to-day management decisions, and this role, at least formally, is less influential compared to his previous role as CEO (Nihon Keizai Shimbun , 2023a) .

Oasis Management expressed disapproval of the external directors who supported Uchiyama’s nomination for the chairmanship, and consequently petitioned for an extraordinary general meeting in February 2023 to supplant those directors (Nihon Keizai Shimbun , 2022) . Oasis posited that Fujitec displayed no interest in enhancing corporate governance, but instead sought to solidify the Uchiyama family’s dominion over the company. As of March 2021, the Uchiyama family held a 6.19% stake in Fujitec.

In anticipation of the Extraordinary General Meeting (EGM), Fujitec’s Chief Executive Officer, Takao Okada, who assumed his position subsequent to the AGM in June 2022, expressed opposition to Oasis’s proposition concerning the termination of six external directors, asserting that such an action “may undermine the corporation’s value” (Nihon Keizai Shimbun, 2023). Contrarily, Fujitec suggested the nomination of two supplementary external directors to reassure shareholders of the organisation’s commitment to promoting corporate governance reforms.

The outcome of the vote during the extraordinary general meeting culminated in the atypical event of external directors being dismissed due to a shareholder motion. Shareholders endorsed the removal of three out of the five external directors (with one of the initial six directors having resigned before the EGM) as proposed by Oasis. Fujitec’s proposition to appoint two new external directors was declined, whereas the nomination of four out of six external directors, proposed as recommended by Oasis Management, was accepted. Consequently, the restructured board comprises nine directors: three internal members, inclusive of CEO Takao Okada, two previous independent directors whose suggested dismissal was negated, and four newly designated directors. Even though Fujitec’s proposed directors maintained a majority of the seats, the management team experienced a replacement of nearly half its members.

The findings from the general meeting highlight a widespread sentiment among Fujitec’s shareholders that the company’s corporate governance practices require enhancement. Nonetheless, the outcome of the vote does not manifest unequivocal backing for Oasis, as the ballot revealed a profound schism among the shareholders. The ousting of three directors garnered 50%-58% approval, while the election of four new directors received endorsement by 51%-59% of the voters, as reported by Nihon Keizai Shimbun (2023b) .

In March, the termination of Takakazu Uchiyama’s role as Chairman at Fujitec Ltd led to a serious hit on the company’s reputation. The dispute intensified in April, as Fujitec announced plans to introduce eight new directors, blaming their governance troubles on “chaos” instigated by Oasis’s involvement (Nihon Keizai Shimbun , 2023c) . This public display of disagreement amplified the reputational harm. Matters got worse when the former Chairman launched a defamation lawsuit against Oasis Management, thereby undercutting faith in the firm’s governance and escalating the risk to the company’s reputation (Nihon Keizai Shimbun , 2023d) .

Analysis of the Conflict

Pressure from foreign investors and activist shareholders is not new for Japanese companies (Jacoby , 2007) . Efforts to change Japanese corporate culture, particularly corporate governance, have been undertaken by foreign investors, with varying degrees of success, since the 1990s, after an asset bubble burst in Japan, followed by the “lost decades” of low economic growth and deflation. The traditional model of corporate governance favoured by the main banking system, which was critical to the functioning of keiretsu, and the cross-shareholding that was once a defence line against unfriendly takeovers gradually became detrimental approaches amid the deterioration of the banks’ balance sheets due to a combination of mounted non-performance loans and loosening cross-shareholding in a poorly performing stock market.

To revive the economy and promote growth, the government of Prime Minister Shinzo Abe introduced a package of reforms called “Abenomics” starting in 2012. “Abenomics” consisted of three pillars or “arrows”: monetary and fiscal measures and structural reforms. The implementation of the Stewardship and Corporate Governance Codes, which are very similar to the UK codes, in 2014 and 2015, respectively, aimed to transform the traditional corporate governance model on the principles of transparency, accountability, and protection of shareholder rights.

The Tokyo Stock Exchange (TSE) played a critical role in adapting these principles within listed companies. In 2022, in 99% of the companies listed in the first section of TSE, two or more directors were independent; in 92% of the companies, one-third or more were independent (TSE , 2022) .

The significance of the conflict between Fujitec Ltd. and Oasis Management is that the fund requested a change of independent directors while all the metrics and, therefore, the “letter” of the regulations were in place. The fact that the shareholders partially voted in favour of dismissing the independent directors chosen by the company and replacing them with shareholder-nominated candidates created a precedent for close access of large shareholders to operational management decisions, breaching the traditional “insider” nature of Japanese corporate governance. The question will be to what degree the independent directors are biased towards management or, as an outcome of the conflict between Fujitec Ltd. and Oasis Management showed, towards the shareholder and how the distribution of power exercised over managerial decisions will be affected.

Worth noting is that it is not unusual for the issue of the independence of these directors to be brought to light in the cases like this. While independence is important, there is no one definition that covers all situations. Aside from past direct and non-direct relations with the company in question, the very issue of the compensation that the company provides may compromise the directors’ independence as does their length of tenure.

The reaction of Nihon Keizai Shimbun, the leading business media outlet in Japan and the owner of the Financial Times, to the conflict and its outcome, was measured. Its editorial article reasoned that while the dismissal of independent directors was an unusual event, the pressure from shareholders on management in Japanese companies is growing and that “it is time to move away from reforms that only take shape and aim for governance that leads to improved competitiveness” (Nihon Keizai Shimbun , 2023e) .

The sharp divide among shareholders at Fujitec’s 2023 Extraordinary General Meeting underscored that no solution suits all shareholders’ interests. Japanese companies traditionally prioritise the interests of all stakeholders, including customers, employees, and the community. However, increasing pressure from abroad— gaiatsu , instigated by foreign investors and activist shareholders—along with the government’s efforts to foster corporate governance reforms, may trigger a shift towards a more shareholder-centric system. This approach could become another sub-model of corporate governance that arises from Japan’s unique cultural and institutional context. It would balance stakeholder interests while acknowledging the role of shareholders. Ultimately, the future of corporate governance in Japan will hinge on a complex interplay of external pressures, internal culture, and overarching economic and political trends.

Actionable Insights

The corporate governance dispute between Fujitec Ltd. and its significant shareholder, Oasis Management, draws attention to the wide-ranging disparities in governance approaches and the significant repercussions they bear on international corporations and stakeholders. This case underscores the influential role of activist shareholders in modifying board makeup and governance structures, necessitating proactive engagement with these activists by multinational businesses. However, it also shows that such face-offs can trigger reputational damage, a factor critical for a business’s longevity (Aguilera , Crespí-Cladera , & de Castro , 2019) , especially in Japan, where trust and enduring stakeholder relationships shape the corporate governance model.

The following are some actionable recommendations based on the conflict between Fujitec Ltd. and Oasis Management, which offer to international business practitioners strategies for navigating the diverse corporate governance and business environment. These are summarised in Table 2 .

Source: Author’s analysis of the conflict between Fujitec Ltd. and Oasis Management

Understand Cultural and Institutional Context

Deepen your grasp of the cultural and institutional milieu. For a foreign business looking to establish itself in Japan, learning the country’s business culture, customs, and practices is vital. This encompasses understanding consensus-building, decision-making hierarchies, and the premium placed on loyalty. Familiarise yourself with the Japanese corporate governance system, stakeholder interests, and recent moves toward a shareholder-focused model.

Conduct Due Diligence and Engage with Management

Undertake thorough research on potential investments by examining their financials, operations, and market standing. Use this data to devise your investment strategy and proactively engage with management to address concerns and suggest governance improvements.

Overcome Resistance and Build Alliances

Anticipate possible opposition to your proposals from entrenched managers and devise strategies to counter this resistance.

Utilise Media Coverage and Monitor Implementation

Effectively employ media platforms to convey your investment philosophy and intentions. However, it is important to balance this strategy by considering the potential reputational damage that may arise from publicising conflicts involving the parties involved.

Stay Informed and Adapt Strategy

Staying informed about changes in regulations or governance practices is critical for the effective adaptation of your strategy. Actively track amendments to regulative documents and policies, such as revisions to the Corporate Governance Code, as it may provide insights into future developments in corporate governance.

Measure Success over the Long Term

Rather than expecting immediate returns, evaluate your efforts’ success over a longer period.

In conclusion, the Fujitec Ltd. and Oasis Management conflict underscores the importance of comprehensive strategies in global corporate governance. Through cultural understanding, due diligence, management engagement, strategic resistance management, alliance-building, media use, implementation monitoring, staying updated, strategy adaptation, and long-term focus, businesses can navigate complex governance landscapes. By integrating these insights, international businesses can proactively handle potential conflicts, nurture stakeholder relationships, improve reputation, and ensure long-term success.

About the Author

Saori Sugeno is a lecturer at Surrey Business School, University of Surrey, where she teaches corporate governance and international business. She earned her PhD in Economics from Chuo University, Japan. Prior to her transition to the academic world, Dr Sugeno enjoyed a sixteen-year career at a leading Japanese investment bank, serving as a senior economist. Her work spanned two of the world’s leading financial hubs: Tokyo and London. This diverse, hands-on experience greatly informs her current research, which primarily explores comparative corporate governance and international business strategies.

Submitted : April 06, 2023 EDT

Accepted : June 28, 2023 EDT

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use the case study to distinguish between shareholders and stakeholders

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  • Section 8. Identifying and Analyzing Stakeholders and Their Interests

Chapter 7 Sections

  • Section 1. Developing a Plan for Increasing Participation in Community Action
  • Section 2. Promoting Participation Among Diverse Groups
  • Section 3. Methods of Contacting Potential Participants
  • Section 4. Writing Letters to Potential Participants
  • Section 5. Making Personal Contact with Potential Participants
  • Section 6. Involving Key Influentials in the Initiative
  • Section 7. Engaging People Most Affected by the Problem
  • Main Section

What do we mean by stakeholders and their interests?

Why identify and analyze stakeholders and their interests, who are potential stakeholders, when should you identify stakeholders, how do you identify and analyze stakeholders and their interests.

The Community Tool Box is a big fan of participatory process.  That means involving as many as possible of those who are affected by or have an interest in any project, initiative, intervention, or effort.  We believe strongly that, in most cases, involving all of these folks will lead to a better process, greater community support and buy-in, more ideas on the table, a better understanding of the community context, and, ultimately, a more effective effort.  In order to conduct a participatory process and gain all the advantages it brings, you have to figure out who the stakeholders are, which of them need to be involved at what level, and what issues they may bring with them.  The same is equally true whether you’re building support for a new or ongoing effort, even if the process that led up to it wasn’t strictly participatory.

Stakeholders are those who may be affected by or have an effect on an effort.  They may also include people who have a strong interest in the effort for academic, philosophical, or political reasons, even though they and their families, friends, and associates are not directly affected by it.

One way to characterize stakeholders is by their relationship to the effort in question.

  • Primary stakeholders are the people or groups that stand to be directly affected, either positively or negatively, by an effort or the actions of an agency, institution, or organization.  In some cases, there are primary stakeholders on both sides of the equation: a regulation that benefits one group may have a negative effect on another.  A rent control policy, for example, benefits tenants, but may hurt landlords.
  • Secondary stakeholders are people or groups that are indirectly affected, either positively or negatively, by an effort or the actions of an agency, institution, or organization.  A program to reduce domestic violence, for instance, could have a positive effect on emergency room personnel by reducing the number of cases they see.  It might require more training for police to help them handle domestic violence calls in a different way.  Both of these groups would be secondary stakeholders.
  • Key stakeholders , who might belong to either or neither of the first two groups, are those who can have a positive or negative effect on an effort, or who are important within or to an organization, agency, or institution engaged in an effort.  The director of an organization might be an obvious key stakeholder, but so might the line staff – those who work directly with participants – who carry out the work of the effort.  If they don’t believe in what they’re doing or don’t do it well, it might as well not have begun.  Other examples of key stakeholders might be funders, elected or appointed government officials, heads of businesses, or clergy and other community figures who wield a significant amount of influence.

While an interest in an effort or organization could be just that – intellectually, academically, philosophically, or politically motivated attention – stakeholders are generally said to have an interest in an effort or organization based on whether they can affect or be affected by it.  The more they stand to benefit or lose by it, the stronger their interest is likely to be.  The more heavily involved they are in the effort or organization, the stronger their interest as well.

Stakeholders’ interests can be many and varied. A few of the more common:

  • Economics . An employment training program might improve economic prospects for low-income people, for example.  Zoning regulations may also have economic consequences for various groups.
  • Social change . An effort to improve racial harmony could alter the social climate for members of both the racial or ethnic minority and the majority.
  • Work . Involving workers in decision-making can enhance work life and make people more satisfied with their jobs.
  • Time . Flexible work hours, relief programs for caregivers, parental leave, and other efforts that provide people with time for leisure or taking care of the business of life can relieve stress and increase productivity.
  • Environment . Protection of open space, conservation of resources, attention to climate change, and other environmental efforts can add to everyday life.  These can also be seen as harmful to business and private ownership.
  • Physical health . Free or sliding-scale medical facilities and other similar programs provide a clear benefit for low-income people and can improve community health.
  • Safety and security . Neighborhood watch or patrol programs, better policing in high-crime neighborhoods, work safety initiatives – all of these and many other efforts can improve safety for specific populations or for the community as a whole.
  • Mental health . Community mental health centers and adult day care can be extremely important not only to people with mental health issues, but also to their families and to the community as a whole.

As we’ll discuss in more depth further on, both the nature and the intensity of stakeholder interests are important to understand.

The most important reason for identifying and understanding stakeholders is that it allows you to recruit them as part of the effort.  The Community Tool Box believes that, in most cases, a participatory effort that involves representation of as many stakeholders as possible has a number of important advantages:

  • It puts more ideas on the table than would be the case if the development and implementation of the effort were confined to a single organization or to a small group of like-minded people.
  • It includes varied perspectives from all sectors and elements of the community affected , thus giving a clearer picture of the community context and potential pitfalls and assets.
  • It gains buy-in and support for the effort from all stakeholders by making them an integral part of its development, planning, implementation, and evaluation.  It becomes their effort, and they’ll do their best to make it work.
  • It’s fair to everyone . All stakeholders can have a say in the development of an effort that may seriously affect them.
  • It saves you from being blindsided by concerns you didn’t know about . If everyone has a seat at the table, concerns can be aired and resolved before they become stumbling blocks.  Even if they can’t be resolved, they won’t come as surprises that derail the effort just when you thought everything was going well.
  • It strengthens your position if there’s opposition . Having all stakeholders on board makes a huge difference in terms of political and moral clout.
  • It creates bridging social capital for the community . Social capital is the web of acquaintances, friendships, family ties, favors, obligations, and other social currency that can be used to cement relationships and strengthen community.  Bridging social capital, which creates connections among diverse groups that might not otherwise interact, is perhaps the most valuable kind. It makes possible a community without barriers of class or economics, where people from all walks of life can know and value one another.  A participatory process, often including everyone from welfare recipients to bank officers and physicians, can help to create just this sort of situation.
  • It increases the credibility of your organization . Involving and attending to the concerns of all stakeholders establishes your organization as fair, ethical, and transparent, and makes it more likely that others will work with you in other circumstances.
  • It increases the chances for the success of your effort . For all of the above reasons, identifying stakeholders and responding to their concerns makes it far more likely that your effort will have both the community support it needs and the appropriate focus to be effective.

As we discussed, there are primary and secondary stakeholders, as well as key stakeholders who may or may not fall into one of the other two categories.  Let’s examine possible stakeholders using that framework.

Primary stakeholders

Beneficiaries or targets of the effort

Beneficiaries are those who stand to gain something – services, skills, money, goods, social connection, etc. – as a direct result of the effort.  Targets are those who may or may not stand to gain personally, or whose actions represent a benefit to a particular (usually disadvantaged) population or to the community as a whole.

Some examples are:

  • A particular population – a racial or ethnic group, a socio-economic group, residents of a housing project, etc.
  • Residents of a particular geographic area – a neighborhood, a town, a rural area.
  • People experiencing or at risk for a particular problem or condition – homelessness, lack of basic skills, unemployment, diabetes.
  • People involved or participants in a particular organization or institution – students at a school, youth involved in the justice system, welfare recipients.
  • People whose behavior the effort aims to change – delinquent youth, smokers, people who engage in unsafe sex, people who don’t exercise.
  • Policy makers and agencies that are the targets of advocacy efforts.

Secondary Stakeholders

Those directly involved with or responsible for beneficiaries or targets of the effort

These might include individuals and organizations that live with, are close to, or care for the people in question, and those that offer services directly to them. Among these you might find:

  • Parents, spouses, siblings, children, other family members, significant others, friends.
  • Schools and their employees – teachers, counselors, aides, etc.
  • Doctors and other medical professionals, particularly primary care providers.
  • Social workers and psychotherapists.
  • Health and human service organizations and their line staff – youth workers, welfare case workers, etc.
  • Community volunteers in various capacities, from drivers to volunteer instructors in training programs to those who staff food pantries and soup kitchens.

Those whose jobs or lives might be affected by the process or results of the effort

Some of these individuals and groups overlap with those in the previous category.

  • Police and other law or regulation enforcement agencies.  New approaches to violence prevention, dealing with drug abuse or domestic violence, or other similar changes may require training and the practice of new skills on the part of members of these agencies.
  • Emergency room personnel, teachers, and others who are legally bound to report possible child abuse and neglect or other similar situations.
  • Landlords. Landlords’ legal rights and responsibilities may be altered by laws brought about by campaigns to stop discrimination in housing or to strengthen tenants’ rights.
  • Contractors and developers. Open-space laws, zoning regulations, and other requirements, as well as incentives, may affect how, where, and what contractors and developers choose to build.
  • Employers. A workplace safety initiative or strengthened workplace safety regulations, health insurance requirements, and other mandates may affect employers’ costs. Those that hire and make a commitment to workers from at-risk populations may also have to institute worker assistance programs (personal and drug/alcohol counseling, for example, as well as basic skills and other training).
  • Ordinary community members whose lives, jobs, or routines might be affected by an effort or policy change, such as the location of a homeless shelter in the neighborhood or changes in zoning regulations.

Key stakeholders

Government officials and policy makers

These are the people who can devise, pass, and enforce laws and regulations that may either fulfill the goals of your effort or directly cancel them out.

  • Legislators. Federal and state or provincial representatives, senators, members of parliament, etc. who introduce and pass laws and generally control public budgets at the federal and state or provincial levels.
  • Governors, mayors, city/town councilors, selectmen, etc. The executives that carry out laws, administer budgets, and generally run the show can contribute greatly to the success – or failure – of an effort.
  • Local board members.  Boards of health, planning, zoning, etc., through their power to issue permits and regulations, can be crucial allies and dangerous opponents.
  • State/federal agencies.  Government agencies often devise and issue regulations and reporting requirements, and can sometimes make or break an effort by how they choose to regulate and how vigorously they enforce their regulations.
  • Policy makers.  These people or groups often have no official power – they may be “advisers” to those with real power – but their opinions and ideas are often followed closely.  If they’re on your side, that’s a big plus.

Those who can influence others

  • People in positions that convey influence. Clergy members, doctors, CEOs, and college presidents are all examples of people in this group.
  • Community leaders – people that others listen to. These might be people who are respected because of their position of leadership in a particular population, or may be longtime or lifelong residents who have earned the community’s trust over years of integrity and community service.

Those with an interest in the outcome of an effort

Some individuals and groups may not be affected by or involved in an effort, but may nonetheless care enough about it that they are willing to work to influence its outcome.  Many of them may have a following or a natural constituency – business people, for instance – and may therefore have a fair amount of clout.

  • Business. The business community usually will recognize its interest in any effort that will provide it with more and better workers, or make it easier and more likely to make a profit.  By the same token, it is likely to oppose efforts that it sees as costing it money or imposing regulations on it.
  • Advocates.  Advocates may be active on either or both sides of the issue you’re concerned with.
  • Community activists. Organizations and individuals who have a philosophical or political interest in the issue or population that an effort involves may organize to support the effort or to defeat it.
  • People with academic or research interests related to a targeted issue or population. Their work may have convinced them of the need for an intervention or initiative, or they may simply be sympathetic to the goals of the effort and understand them better than most.
  • Funders.  Funders and potential funders are obvious key stakeholders, in that, in many cases, without their support, the effort won’t be possible.
  • Community at large. When widespread community support is needed, the community as a whole may be the key stakeholder.

When should you identify stakeholders and their interests?

Regardless of the purpose of your effort, identifying stakeholders and their interests should be among the first, if not the very first, of the items on your agenda. It’s generally the fairest course you can take, and the one that is most likely to keep your effort out of trouble.

  • If you want to involve stakeholders in a participatory process, the reasons are obvious . They should be part of every phase of the work, so that they can both contribute and take ownership.Their knowledge of the community and understanding of its needs can prove invaluable in helping you to avoid mistakes in your approach and in the people you choose to involve.
  • If your intent is a participatory action research project, stakeholders should be included in any assessment and pre-planning activities as well as planning and implementation . That way, they’ll understand the research process and project much more clearly, and can add to them.
  • If you want your process to be regarded as transparent, stakeholder involvement from the beginning is absolutely necessary . The community will only believe in an open process if it’s truly open.
  • If your effort involves changes that will affect people in different ways, it’s important that they be involved early so that any concerns or barriers show up early and can be addressed.
  • In situations where there are legal implications, such as the building of a development, involving stakeholders from the beginning is both fair and can help stave off the possibility of lawsuits down the road.

In short, in most cases, the earlier in the process stakeholders can be involved, the better.

The first step in identifying and addressing stakeholder interests is, not surprisingly, identifying the stakeholders. We’ve discussed in general terms the categories that stakeholders might fall into, but the list is different for each community and each effort.  It’s an important part of your job to determine who all your stakeholders are, and to try to involve them in a way that advances your goals.

Once you’ve identified stakeholders, the next task is to understand their interests. Some will have an investment in carrying the effort forward, but others may be equally intent on preventing it from happening or making sure it’s unsuccessful.  Stakeholder analysis (also called stakeholder mapping) will help you decide which stakeholders might have the most influence over the success or failure of your effort, which might be your most important supporters, and which might be your most important opponents.  Once you have that information, you can make plans for dealing with stakeholders with different interests and different levels of influence.

Identifying stakeholders

In identifying stakeholders, it’s important to think beyond the obvious. Beneficiaries, policy makers, etc. are easy to identify, whereas indirect effects – and, as a result, secondary stakeholders – are sometimes harder to see.  A push for new regulations on a particular industry, for instance, might entail greatly increased paperwork or the purchase of new machinery on the part of that industry’s suppliers.  Traffic restrictions to control speeding in residential neighborhoods may affect commuters that use public transportation.  Try to think of as many ways as possible that your effort might bring benefits or problems to people not directly in its path.

Given that, there are a number of ways to identify stakeholders. Often, the use of more than one will yield the best results.

  • Brainstorm . Get together with people in your organization, officials, and others already involved in or informed about the effort and start calling out categories and names.  Part of the point of brainstorming is to come out with anything that comes to mind, even if it seems silly.  On reflection, the silly ideas can turn out to be among the best, so be as far-ranging as you can.  After 10 or 15 minutes, stop and discuss each suggestion, perhaps identifying each as a primary, secondary, and/or key stakeholder.
  • Collect categories and names from informants in the community (if they’re not available to be part of a brainstorming session), particularly members of a population or residents of a geographic area of concern.
  • Consult with organizations that either are or have been involved in similar efforts, or that work with the population or in the area of concern.
  • Get more ideas from stakeholders as you identify them.
  • If appropriate, advertise .  You can use some combination of the media – often free, through various community service arrangements – community meetings, community and organizational newsletters, social media, targeted emails, announcements by leaders at meetings and religious gatherings, and word of mouth to get the word out.  You may find people who consider themselves stakeholders whom you haven’t thought about.

Discovering and understanding stakeholder interests

As we’ve mentioned several times, stakeholder interests may vary.  Some stakeholders’ interests may be best served by carrying the effort forward, others’ by stopping or weakening it.  Even among stakeholders from the same group, there may be conflicting concerns.  Some of the many ways that stakeholder interests may manifest themselves:

  • Potential beneficiaries may be wildly supportive of an effort, seeing it as an opportunity or the pathway to a better life… or they may be ambivalent or resentful toward it.  The effort or intervention may be embarrassing to them (e.g., adult literacy) or may seem burdensome.  They may not understand it, or they may not see the benefit that will come from it.  They may be afraid to try something new, on the assumption that they’ll fail, or will end up worse off than they are.  They may be distrustful of any people or organizations engaged in such an effort, and feel they’re being looked down on.
  • Some stakeholders may have economic concerns.  Sometimes these concerns are merely selfish or greedy – as in the case of a corporation with billions in annual profits unwilling to spend a small part of that money to stop its factories from polluting – but in most cases, they are legitimate.
A classic case is that of the conflict between open space preservation and the opportunity to sell land for development. Farmers and other rural residents often have almost no other assets but their land. If, by selling it, they can become instant millionaires and live comfortably in retirement after working very hard for very little all their lives, why should they be expected to pass up that opportunity in favor of open space preservation? In some U.S. states, farmland has been preserved by the state’s paying farmers the development value of their land (or something close) in return for a legal agreement to always keep the land in cultivation or open space. Conservation easements – agreements never to develop the land, no matter how many owners it goes through – sometimes are negotiated on the same basis.
  • Economic concerns may also work in favor of an effort. An initiative to build one or more community clinics can provide construction jobs, orders for medical equipment, jobs for medical professionals and paraprofessionals, and economic advantages for the community. It might be backed, therefore, by unions, equipment manufacturers, professional associations, and local government, largely for economic reasons.
  • Business people may have concerns about such things as universal health care or regulation. While these may be good for the larger society, they may actually hurt some businesses. Especially for very small business, where a slight change in profits may mean not a drop in share price, but the inability to sustain one’s livelihood, this is a big issue. Businesses may have economic concerns in the opposite direction as well. Violence prevention might bode well for businesses in areas that people are hesitant to frequent because of the threat of violence, and it might also reduce the risk of losses and physical harm to the business owners themselves. Thus their positive interest in an effective violence prevention effort.
  • Organizations, agencies, and institutions may have a financial stake in an effort because of funding concerns. Their ability to be funded for conducting activities related to the effort may mean the difference between laying off and keeping staff members, or even between survival and closing the doors.
  • Efforts that concern issues that are controversial for cultural reasons, such as abortion and gay marriage, may be enthusiastically supported by some segments of the community and fiercely opposed by others. While such hot-button issues may not be resolvable, it’s important to understand the positions of stakeholders on both sides.
  • Ideological as well as cultural differences may also drive stakeholder interests. Those who believe that government shouldn’t be seen as the source of anything but the most basic services that people obviously can’t provide for themselves – the military, roads, police, public education – might oppose government-funded programs to help the poor, maintain public health, or provide other services that others deem necessary for the well-being of the community.
  • Legislators and policy makers may be concerned with public perceptions that they’re wasting public money by funding a particular effort. (On the other hand, they can be convinced to spend the money by the perception that an effort is one the public is greatly in favor of, or one that will return more than is being spent.)
  • The jobs of organization staff members engaged in carrying out an effort can be drastically changed by the necessity to learn new methods, increases in paperwork, or any number of other requirements. Depending on the situation, they may be more than willing to take on these responsibilities, may have ideas about how they can be made less burdensome, or may resent and dislike them.
Mandates that don’t directly affect various professionals may affect them indirectly. The jobs of police, teachers, therapists, medical personnel, and others can be changed by changes in laws, regulations, or policy. Increased or decreased emphasis on enforcement or treatment for drug-related offenses can place new obligations on police and others, even if they haven’t been involved in deciding on the changes. Reporting requirements for child abuse and neglect, domestic violence, and other types of crimes may affect the work of teachers, doctors, nurses, therapists, and others.
  • Family concerns may enter into stakeholder interests as well. Parents in many places can now be reported for child abuse for applying punishments like spankings with a brush or belt that their own parents may have used as a matter of course. Without discussing the rights or wrongs of the issue, it’s important to understand that some people will see this as protecting children and others as interfering with parental rights.
You don’t have to – and in fact shouldn’t – guess what stakeholder interests are. Ask them what’s important to them. If there are stakeholders that aren’t willing to be involved, try to talk to them anyway. If that isn’t possible, try to find out their concerns from others who are likely to know. Most stakeholders will be more than willing to tell you how they feel about a potential or ongoing effort, what their concerns are, and what needs to be done or to change to address those concerns.

Stakeholder analysis/stakeholder mapping

Let’s suppose, then, that you’ve identified all the stakeholders, and that you understand each of their concerns.  Now what?  They all have to understand what you want to do, you have to respond to their concerns in some way – at least by acknowledging them, whether you can satisfy them or not – and you have to find a way to move forward with as much support from stakeholders as you can muster.

Stakeholder analysis (stakeholder mapping) is a way of determining who among stakeholders can have the most positive or negative influence on an effort, who is likely to be most affected by the effort, and how you should work with stakeholders with different levels of interest and influence.

Most methods of stakeholder analysis or mapping divide stakeholders into one of four groups, each occupying one space in a four-space grid:

As you can see, low to high influence over the effort runs along a line from the bottom to the top of the grid, and low to high interest in the effort runs along a line from left to right. Both influence and interest can be either positive or negative, depending on the perspectives of the stakeholders in question. The lines describing them are continuous, meaning that people can have any degree of interest from none to as high as possible, including any of the points in between.

The people we’ve described as “key stakeholders” would generally appear in the upper right quadrant.

The purpose of this kind of diagram is to help you understand what kind of influence each stakeholder has on your organization and/or the process and potential success of the effort. That knowledge in turn can help you decide how to manage stakeholders – how to marshal the help of those that support you, how to involve those who could be helpful, and how to convert – or at least neutralize – those who may start out feeling negative.

An assumption that most proponents of this analysis technique seem to make is that the stakeholders most important to the success of your effort are in the upper right section of the grid, and those least important are in the lower left. The names in parentheses are another way to define the same stakeholder characteristics in terms of how they relate to the effort.

  • Promoters have both great interest in the effort and the power to help make it successful (or to derail it).
  • Defenders have a vested interest and can voice their support in the community, but have little actual power to influence the effort in any way.
  • Latents have no particular interest or involvement in the effort, but have the power to influence it greatly if they become interested.
  • Apathetics have little interest and little power, and may not even know the effort exists.
The World Bank, which is responsible for this characterization, couches it in generally positive terms, assuming that those in the upper right will promote the effort. In fact, they could be either promoters or staunch opponents, and the same – with different degrees of power and interest – goes for the other three sections of the grid. In many cases, there will be people in both camps in each quadrant, and among the tasks of the organization(s) conducting the effort are to turn negative influential stakeholders to positive, and to move as many current and potential supporters as possible closer to the top right of the chart.

Interest here means one or both of two things: (1) that the individual, organization, or group is interested intellectually or philosophically in the effort; and/or (2) she or it is affected by it. The level of interest, in this second sense, corresponds to how great the effect is. A welfare recipient who stands to receive increased benefits, child care, and employment training from a back-to-work program, for example, has a greater interest in the effort than someone who simply thinks the program is a good idea, but has no intention of being involved in it in any way.

Influence can be interpreted in several ways:

  • An individual or group can wield official power in some way – as a government official or agency, for example.
  • As an administrator, board member, or funder, an individual or group has some power over the organization conducting the effort.
  • Another possibility is influence as a “community leader” – a college president, hospital CEO, clergy member, bank president, etc. These people are often listened to as a result of their positions in the community, and may hold one or more actual or honorary positions that give them even more influence: chair of the United Way campaign, officer of one or more corporate or non-profit boards, etc.
  • Key stakeholders are often connected to large networks, and thus can both reach and sway many community members. Such connections can be through work, family, long generations or years of residency, membership in many clubs and organizations, or former official status.
  • Great influence can be exercised by people (or, occasionally, organizations) that are simply respected in the community for their intelligence, integrity, concern for others and the common good, and objectivity.
  • Some people and organizations exercise influence through economics. The largest employer in a community can exert considerable control over its workforce, for example, or even over the community as a whole, using a combination of threats and rewards.

Influence and interest can be either internal or external to the organization or the community. Most of the descriptions above pertain to external influence and interest, but they could be internal as well. Organizations and institutions as well as communities have official and unofficial leaders, people in positions that confer power or influence, people with large networks, etc. In addition, those who actually carry out the effort – usually staff people in an organization – can have a great deal of control over whether an effort is conducted as intended, and therefore over its effectiveness.

Stakeholder management

Stakeholder analysis is only useful if it’s used. Stakeholder management is where analysis and practice meet. It allows you to use the analysis to help gain support and buy-in for your effort. Although, as we’ll see, it can be quite helpful in health and community work, the stakeholder analysis model we’re using comes out of business, and is largely meant to help people make sure to get the power on their side for any project they attempt. Community-based and community-focused organizations and institutions may be more likely to have other purposes in mind when the issue of stakeholder management arises.

A big question here is whether the whole concept of stakeholder management is in fact directly opposed to the idea of participatory process, where everyone has a voice. In practice, we all try to manage people constantly, from attempting to convince a skeptical three-year-old that broccoli tastes good to motivating students and employees to do their best. If management turns into manipulation, without any respect for the other person or organization involved, it’s definitely not in the spirit of participation. Persuasion, negotiation, education, and other methods of managing stakeholders that acknowledge their concerns, however, do not violate that spirit, and are often a necessary part of making a participatory process work.

The first step in stakeholder management is to understand clearly where each stakeholder lies in the grid. Someone that has both a major interest in and considerable power over the organization and/or the effort – a funder, for example, or a leader of a population of concern – would go in the upper right-hand corner of the upper right quadrant. Stakeholders with neither power nor interest would go in the lower left-hand corner of the lower left quadrant. Those with a reasonable amount of power and interest would go in the middle of the upper-right quadrant, etc. Eventually, the grid will be filled in with the names of stakeholders occupying various places in each of the quadrants, corresponding to their levels of power and interest.

The next step is to decide who needs the most attention. In general, the business people who use this model would say that you should expend most of your energy on the people who can be most helpful, i.e., those with the most power. Powerful people with the highest interest are most important, followed by those with power and less interest. Those in the lower right quadrant – high interest, less power – come next, with those with low interest and low power coming last.

Another way to look at stakeholder management – and remember that all the people and groups we’re talking about here are stakeholders, those who can affect and are affected by the effort in question – is that the most important stakeholders are those most dramatically affected. Some of those, at least before the effort begins, may be in the lower left quadrant of the grid. They may be too involved in trying to survive – either financially or physically – from day to day to think about an effort to change their situation.

So…your stakeholder management depends on what your purpose is in involving stakeholders. If your purpose is to marshal support for the effort or policy change, then each group – each quadrant of the grid – calls for one kind of attention. If your purpose is primarily participatory, then each quadrant calls for another kind of attention.

Stakeholder management for marshaling support for the effort, especially for advocacy or policy change:

  • The promoters – the high influence/high interest folks – are the most important here. They’re the ones who can really make the effort go, and they care about and are invested in the issue. If they’re positive, they need to be cultivated and involved. Find jobs for them (not just tasks) that they’ll enjoy, and that contribute substantively to the effort, so they can feel responsible for part of what’s going on. Pay attention to their opinions, and accede to them where it’s appropriate. If their ideas aren’t acted on, make sure they know why, and why an alternative seems like the better course. As much as possible, make them integral parts of the team.
When people who could be promoters are negative, the major task is to convert them. If you can’t, they become the most powerful opponents of your effort, and could make it impossible to succeed. Thus, they need to be treated as potential allies, and their concerns should be addressed to the extent possible without compromising the effort.
  • The latents – high influence/low interest. These are people and organizations largely unaffected by the effort that could potentially be extremely helpful, if they could be convinced that the effort is important either to their own self-interest or to the greater good. You have to approach and inform them, and to keep contact with them over time. Offer them opportunities to weigh in on issues relating to the effort, and demonstrate to them how the effort will have a positive effect on issues and populations they’re concerned with. If you can shift them over to the promoter category, you’ve gained valuable allies.
Once again, there’s the possibility that these folks could be negative and oppositional. If that’s the case, it might be best not to stir a sleeping dragon. If they’re not particularly affected by or concerned about the effort, even if they disapprove of it, the chances are that they’ll simply leave it and you alone, and it might be best that way. If they begin to voice opposition, then your first attempt might be at conversion or neutralization, rather than battle. If that doesn’t work, then you might have to fight.
  • The defenders – low influence/high interest. In the business model, since these people and organizations can’t help you much, you can simply keep them informed and not worry too much about involving them further. In health and community building, however, they can often provide the volunteer time and skills that an effort – particularly an advocacy initiative – needs to survive. These are often the foot soldiers who stuff envelopes, make phone calls, and otherwise make an initiative possible. They are also often among those most affected by an effort, and thus have good reason to work hard for or against it, depending on how it affects them.
  • The apathetics – those with low interest and low influence. These people and organizations simply don’t care about your effort one way or the other. They may be stakeholders only through their membership in a group or their position in the community; the effort may in fact have little or no impact on them. As a result, they need little or no management. Keep them sporadically informed by newsletter or some similar device, and don’t offend them, and they won’t bother you or get in the way.
While this formulation is no more compelling than other similar ones, it has the advantage of giving a label to each quadrant. We’ll use these labels in the rest of the section for convenience.

Stakeholder management for developing a participatory process or including marginalized populations:

The model of stakeholder management described above isn’t applicable only to business. Organizations must cultivate supporters in support of any effort. Deciding whom to cultivate by analyzing how much they can help is a standard part of health and community service work, as well as of advocacy. If your purpose is primarily to create a participatory process, however, you’ll try to create an effort that takes all perspectives into consideration, hashes out differences, and makes participants its owners. Stakeholder management in that situation means trying to attract representatives of all stakeholders, and treating them all as equals and colleagues, while at the same time leveling the field as much as possible by providing training and support to those who need it.

The four-cell grid is still useful here, but the attention given to those in each quadrant will be different from that in the other model. Here, the largest amount of attention may go to the people in the two lower quadrants, since those with little power often have less experience in such areas as meeting and planning, and less confidence in their ability to engage in them. They’ll definitely need information about what they’re being invited to do, and they might need training, mentoring, and/or other support in doing it.

A successful participatory process may require that the people in the upper right quadrant – the promoters – understand and buy into the process fully. They can then help to bring stakeholders in the other positions on board, and to encourage them to participate in planning, implementing, and evaluating the effort. That means working with the promoters to explain the concept of participation fully and to convince them that pulling all stakeholders in is the best way to accomplish your – and their – goals. They might also serve as mentors or partners to those who are not used to having seats at the table.

Obviously, not all stakeholders in the lower two quadrants are low-income, unused to managing things, or lacking in educational and organizational skills. Some simply don’t see themselves as much affected by the effort. Others may have no influence in this particular situation, though they may have a great deal in other circumstances. Very often, however, those who do lack skills and experience find themselves in those two lower quadrants. When that’s the case, they may need training and other support in order to participate fully. That may be one aspect of stakeholder management, and it may help to move them into positions of more influence and teach them how to exercise it.

The tasks of converting the negative or skeptical still exist in this situation, as does the need to create interest among the latents – those stakeholders who could be helpful, but don’t have a strong investment in the effort. Often, the stories of those who have or will benefit from the effort can be effective motivators for people who might otherwise be indifferent. Such stories are particularly powerful if the listeners know the people involved, but never suspected the difficulties they face.

If the latents become involved, their influence can help to greatly strengthen the effort. The more people, groups, institutions, and organizations with influence that are involved, the greater the chances are for success. The task with latents is to convince them that they are true stakeholders, and that the effort will benefit them either directly or indirectly. If it’s not direct, the benefit in question may be as removed from them as increasing the community’s tax base by making more people employable, or creating a more just community by eliminating discrimination.

Bringing people and organizations into the process and moving them toward the upper right quadrant of the stakeholder grid generally demands that you keep them involved and informed by:

  • Treating them with respect
  • Providing whatever information, training, mentoring, and/or other support they need to stay involved
  • Finding tasks or jobs for them to do that catch their interest and use their talents
  • Maintaining their enthusiasm with praise, celebrations, small tokens of appreciation, and continual reminders of the effort’s accomplishments
  • Engaging them in decision-making
  • Employing them in the conception, planning, implementation, and evaluation of the effort from its beginning
  • In the case of those who start with little power or influence, helping them learn how to gain and exercise influence by working together and developing their personal, critical thinking, and political skills

Evaluation of the stakeholder process

As with anything else you do, it’s important to monitor and evaluate how well stakeholders have been identified, understood, and involved in the course of your effort. It’s obviously best to involve stakeholders from the very beginning, but it’s never too late to learn from what you’ve done so that you can improve your work. Evaluation of the stakeholder process should be an integral part of the overall evaluation of the effort, and stakeholders themselves should be involved in developing that evaluation. They can best tell you what did and didn’t work to pull them in and keep them engaged.

Here are some evaluation questions you might consider:

  • What could you have done to better identify stakeholders?
  • Which strategies worked best to involve different populations and groups?
  • How successful were you in keeping people involved?
  • Did you provide any training or other support? Was it helpful? How could it have been improved?
  • Did your stakeholder analysis and management efforts have the desired effect? Were they helpful?
  • Did stakeholder involvement improve the work, effectiveness, and/or political and community support of the effort?

The answers to these and similar questions could both help you improve the current effort and make a big difference the next time – and there will be a next time – you involve stakeholders.

Keeping at it to keep stakeholders involved

That brings us to the final piece of working with stakeholders. As with any other community building activity, you have to keep at it indefinitely, or at least as long as the effort goes on. New stakeholders may need to be brought in as time goes on. Old ones may cease to be actual stakeholders, but may retain an interest in the effort and may therefore continue to be included. You have to maintain stakeholders’ and supporters’ motivation, keep them informed, and/or continue to find meaningful work for them to do if you want to keep them involved and active. Understanding and engaging stakeholders can be tremendously helpful to your effort, but only if it results in their ownership of it and long-term commitment to it. And that depends on your continuing attention.

Stakeholders of an effort are those who have a vested interest in it, either as those who develop and conduct it, or as those whom it affects directly or indirectly. Identifying and involving stakeholders can be a large part of ensuring the effort’s success.  In order to gain stakeholder participation and support, it’s important to understand not only who potential stakeholders are, but the nature of their interest in the effort.  With that understanding, you’ll be able to invite their involvement, address their concerns, and demonstrate how the effort will benefit them.

Managing stakeholders – keeping them involved and supportive – can be made easier by stakeholder analysis, a method of determining their levels of interest in and influence over the effort.  Once you have that information, you can then decide on the appropriate approach for each individual and group.  Depending on your goals for the effort, you may either focus on those with the most interest and influence, or on those who are most affected by the effort.

As with any community building activity, work with stakeholders has to continue for the long term in order to attain the level of participation and support you need for a successful effort.

Online Resources

Mind Tools - Stakeholder Analysis: Winning Support for Your Projects  is a business-oriented method, but can be applied elsewhere as well.

Reference for Business - Stakeholders  is an article on stakeholder perspective from Reference for Business, Encyclopedia of Business, 2nd ed.  Business oriented.

A description of  Stakeholder Analysis  from the Guide to Managing for Quality, a joint effort of Management Sciences for Health and UNICEF.

World Bank - Stakeholders  provides perspective on stakeholder analysis.

Stakeholder Capitalism vs Shareholder Capitalism: Are we at a pivotal moment?

Stakeholder versus shareholder capitalism is by no means a new debate. It’s one that’s been discussed for decades, but recent years have brought special attention to it. Here’s how these two perspectives differ, the people supporting each side, and the rationale behind these two concepts. 

What Is Shareholder Capitalism?  

Those who support shareholder capitalism believe that corporations have one purpose they need to fulfill: Generate revenue and ensure things are profitable for shareholders (i.e., those who own stock in the company). They also go as far as saying that losing sight of shareholders, who should be the primary party to please, will backfire on the company’s success. 

What Is Stakeholder Capitalism?  

Supporters of stakeholder capitalism say that a company should consider more than just the owners (i.e., shareholders), but everyone who has a stake in the company’s success. That includes employees, customers, and suppliers. In other words, anyone doing business with the company deserves its considerations as to how its actions will impact all of these parties.  

Who Supports Shareholder Capitalism?  

Milton Friedman, professor at the University of Chicago, is often dubbed the “godfather” of shareholder capitalism. His view asserts that the only responsibility of a corporation’s executives is to ensure the owners see a profit. Friedman, who is a  Nobel Prize winner , has argued this point all the way back to the 1970s when he published an essay in the  New York Times  on the same topic.  

His opinion focuses around the ability to measure and define stockholder returns, whereas expecting corporate executives to account for other social responsibilities would require “spending someone else’s money for a general social interest.” He likens it to an unelected official taxing shareholders and then spending that money however they please, with very little accountability. With competing interest between shareholders and stakeholders, corporations would struggle to please everyone.  

Who Supports Stakeholder Capitalism?  

One of the biggest advocates of stakeholder capitalism is the Business Roundtable, which is an association of some of America’s largest corporate executives. Also on the board is  Klaus Schwab , who founded the World Economic Forum (WEF). Schwab asserts that corporate executives must consider interests that go beyond profit-focused shareholders in order to perform ethically and in a balanced, sustainable manner. 

Founder and CEO of  BlackRock , Larry Fink, publicly acknowledged that the wealthy have prospered since the 2008 financial crash while “regular people” have lost stability. As the Chief Executive of the world’s biggest asset manager, his words prove impactful. In 2018, he wrote: “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.” This year, they advocated for increased investor focus on sustainable values. 

Joseph Stiglitz , professor at Columbia University and a Nobel Prize winner, has conducted substantial research in response to fellow professor Friedman’s ideas back in the 1970s. In his research with Sandy Grossman, Stiglitz showed that “shareholder wealth maximization  doesn’t maximize societal welfare .” Instead, he continues to support a focus on all stakeholders.  

Defining a Company’s “Stakeholders”  

In an attempt to offer clarity and direction for those pursuing stakeholder capitalism, the Business Roundtable has defined stakeholders as follows and advocated for the following commitments to each party: 

  • Customers : Companies should focus on delivering value. 
  • Employees:  Companies should invest in employees through fair compensation, training, education, fostering diversity, being inclusive, and treating everyone with dignity and respect. 
  • Suppliers:  Companies should handle business in a fair and ethical manner with all suppliers. 
  • Community : Companies should respect those in the community and beyond, taking initiatives to protect the environment through eco-friendly, clean, and sustainable processes. 
  • Shareholders:  Companies should still strive to create long-term value for those who are shareholders, while offering transparency as to how the company is being managed.  

On paper, these commitments look promising. However, those against stakeholder capitalism say it’s simply far too complex. With competing interests amongst these parties, some would even call it impossible. 

Is Shareholder Capitalism Short-Sighted?  

While those against stakeholder capitalism are quick to call out its challenges, those against shareholder capitalism have a long history of failed business ventures to back their perspective. Many consider shareholder capitalism to be a short-sighted endeavor. In other words, with a focus on pleasing shareholders by making a profit, many companies put their focus into the wrong areas. 

Under shareholder capitalism, business leaders are encouraged to make decisions that lead to quick profit, but they often have long-term consequences. The damage can range from harm to consumers (i.e., selling unhealthy or addictive products); poor employee treatment (i.e., too little pay, unsafe working conditions); damage to communities (i.e., dumping industrial waste into water or soil); and so on.  

Of course, not all would agree with this short-term outlook. For instance,  Michael Faulkender  (Professor at the University of Maryland), says that shareholder capitalism already rewards long-term outlook because equity prices are based on future earnings, not current earnings.  

Is Stakeholder Capitalism Viable?  

Let’s face it: No plan is perfect, and Stiglitz is quick to admit it. He suggested that some signers of the Business Roundtable were disingenuous because they continued to pay less than their fair share of taxes.  

Meanwhile, although certifications exist that help verify a company’s commitment to being a stakeholder-focused corporation (like the list of “B Corporations”), some have been found in direct violation of their pledges.  

Ultimately, given the size of the average corporation and the complexities of verifying social and environmental accountability, mistakes happen. However, proponents of stakeholder capitalism say it most certainly can work. Moreover, more employees and consumers are becoming conscious of the companies they’re buying from, taking support away from brands who fail to consider the long-term, widespread consequences of their actions. 

Get  a  Better Grip on Your Company’s Back Office  

So, where does your company stand in the stakeholder vs shareholder capitalism debate? Ultimately, no matter which side you’re on, profitability remains a key factor in a company’s success.

Multiview ERP is much more than traditional accounting software. It offers robust reporting with intercompany financial statements, dashboards, key performance indicators (KPIs) and data-warehouse interface reporting through our data and reporting engine. It acts as a single source of truth across all information sources in the company. It also has a unique implementation process and support structure to help streamline the transition, and it is fully scalable, designed for expanding small businesses and industry giants alike. 

More than that, Multiview takes pride in putting people first . Our caring, helpful teams are happy to work with you to explain features, answer questions, and help make sure you get the best match for your business and its goals. 

Contact us today to  schedule a demo . 

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Multiview Financials ERP provides our clients with a comprehensive software suite that empowers their finance teams to advance their organizations.

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  • Difference Between Stakeholder And Shareholder

Top 6 Difference Between Stakeholder and Shareholder

What is a stakeholder.

Stakeholders can be referred to as a person, organization or a group having an active interest in the functioning of an organization. Stakeholders can affect or are affected by the changes in the business.

Stakeholders are of two types, internal and external. Internal stakeholders are referred to as those persons who have an interest in the company due to presence of a direct relationship with the company, such as through ownership, employment or an investor (through investment).

External stakeholders are those persons who although, not being directly involved with a company but are impacted in some way through the actions and business outcomes. Creditors, suppliers, and public groups are all considered examples of external stakeholders.

What is a Shareholder?

A shareholder is any person or an institution that owns one or more shares in a company. Due to the holder of a share in a company, they can be regarded as partial owners. They receive monetary benefits in the form of dividends as and when the company earns profit from the market.

Shareholders do not engage in the management of a firm’s operations. A board of directors set up by the shareholder looks after the operations.

Also Check:  How to Become a Shareholder?

There are two kinds of shareholders, those who own less than 50% of a company’s stock are known as ‘minority shareholders’, whereas the shareholders who control 50% or more of a company’s stock are called ‘majority shareholders’.

Let us look into the major differences between stakeholders and shareholders in the following table.

For a student of Commerce and Management, this article is of considerable significance as it deals with the critical concept of the fundamental differences between stakeholders and shareholders. More such exciting concepts are coming up. Stay tuned to BYJU’S.

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    The key difference between common shareholders and preferred shareholders is that common stock provides voting rights to shareholders while preferred stock doesn't. However, preferred shareholders also have priority over common shareholders regarding when they receive dividend payouts. There are two types of stakeholders: internal and external.

  16. How Shareholders Impact Stakeholder Interests: A Review and Map for

    Moreover, discussions on the tradeoffs between shareholder and stakeholder interests and the purpose of the firm—often under the parlance of shareholder versus stakeholder primacy—have received significant scholarly attention in recent years (e.g., Goranova & Ryan, 2022; Inkpen & Sundaram, 2022).Yet, unlike early supporters of shareholder primacy, who propose shareholders have a single ...

  17. The Shareholders vs. Stakeholders Debate

    The stakeholder theory demands that stakeholder interests be considered as an end in themselves. If stakeholder interests are being considered only as a means to the end of profitability, then managers are using stakeholders to effect the results dictated by the shareholder theory. These are two very different concepts.

  18. Why and how you should distinguish between stakeholders

    They can make stakeholder capitalism work by doing three things: Focusing on the creation of long-term shareholder value as the objective and resisting the demands of short-term stakeholders. Identifying, mobilizing and rewarding those stakeholders critical for the long-term value of the firm. Avoiding the hidden risks in short-changing weak ...

  19. Stakeholders vs Shareholders: The Clash of Corporate Governance Models

    The contrast between the two approaches was recently highlighted in the case of Fujitec Ltd. and Oasis Management, where the Hong Kong-based investment fund challenged the Japanese company's governance structure and called for changes to maximise shareholder value.

  20. Section 8. Identifying and Analyzing Stakeholders and Their Interests

    Having all stakeholders on board makes a huge difference in terms of political and moral clout. It creates bridging social capital for the community. Social capital is the web of acquaintances, friendships, family ties, favors, obligations, and other social currency that can be used to cement relationships and strengthen community.

  21. Stakeholder Capitalism vs Shareholder Capitalism

    January 25, 2021. Stakeholder versus shareholder capitalism is by no means a new debate. It's one that's been discussed for decades, but recent years have brought special attention to it. Here's how these two perspectives differ, the people supporting each side, and the rationale behind these two concepts.

  22. Difference Between Stakeholder and Shareholder

    Stakeholders are individuals or organization that has an active interest in the functioning of a company. Shareholders are individuals or organizations who are the holders of one or more shares of the company. Impact. The events in a company can directly or indirectly impact stakeholders. Shareholders are always directly impacted by events in a ...