Stakeholder vs. Shareholder

What’s the Difference?

In the business world, there are many terminologies that can be easily confused and construed. This is especially common in the world of commercial real estate investing. Stakeholder vs shareholder are two common terms that are often conflated. While they look and sound similar, there are significant differences in the nature of each as it relates to roles, responsibilities, and functions.

Stakeholder vs shareholder

The expert investment team at Hartman created this article to clarify the difference between these two titles, what the delineations mean, and what stakeholders vs shareholders value most. Continue reading to learn more.

What is a Stakeholder?

A stakeholder is an individual or entity that has a vested interest in a company. The vested interest we refer to does not have to be financial in nature.

Stakeholders can be either internal or external, meaning they may or may not work for a company but are somehow impacted by a company’s operations or performance.

Internal stakeholders are often thought of as primary stakeholders who have a direct connection to the company, such as employees, managers, and board members.

External stakeholders may be secondary stakeholders who have indirect connections to the company, such as suppliers, customers, and lenders.

All stakeholders have a “stake” in a company’s success or failure.

 

Examples of internal stakeholders include:

  • Employees
  • Managers
  • Board members

 

Examples of external stakeholders include:

  • Suppliers
  • Customers
  • Lenders
  • Community where a business is located
  • Partners
  • Media
  • Influencers
Types of Stakeholders

Stakeholder groups may influence the decision-making process of a company. Smart  leadership teams will take various stakeholders’ opinions and ideas into account when making business decisions.

What do Stakeholders Value?​

Stakeholders are interested in the long-term success of the company, as well as its day-to-day performance. Employees may be most concerned with job security and earning a livable wage. Customers or supportive stakeholders may be concerned with performance in a given market, product development, and reputation.

Here are some common stakeholder values:

Company stock valuation

A company’s stock valuation is a strong indicator of its success to stakeholders, even if they’re not direct shareholders.

Company growth

A company that’s growing is seen as having long-term prospects. A company that’s staying the same or shrinking is seen as stagnant or in danger of failure which could cause stakeholders such as internal stakeholders to hold concerns about job security.

Increased profitability

Increased profitability quarter over quarter and year over year shows that a company’s core foundations are strong and promising to stakeholders

Strong dividend payouts

If a stakeholder holds any form  of shareholder interest in the company, stakeholders will want dividend payouts to be worth their while. If they do not hold shareholder interest, they are still fixed on strong dividend payouts as dividend payouts can affect their personal wage earnings and future career outlook.

Financial stability

Long-term financial stability is key for most stakeholders. They’re interested in a company not only turning a profit today, but continuing to do so for the long-term.

CSR (Corporate social responsibility)

Many stakeholders care deeply about an organization’s perceived social impact — they want the business to play a positive role in the world.

Becoming more competitive

Stakeholders often care deeply about seeing a company actively compete against other companies in their space, particularly if those other companies are larger or more innovative.

Recognizing and rewarding those that add value to a company

Internal stakeholders want to feel recognized and rewarded for their contributions to a company’s success. If they’re not, they could feel disconnected from the organization.

Using performance evaluations to solve strategic issues

Problem-solving is important for stakeholders. They want to see that issues are being actively investigated and corrected.

What is a Shareholder?

While a stakeholder is any party that has an interest in the success or failure of a business, a shareholder is a stakeholder who actually owns shares in the company. Shareholders are generally motivated by the potential for financial gain. While both shareholders and stakeholders can influence the direction of a company, shareholders typically have more power because they carry voting power.

What do Shareholders Value?

There are many areas where the interests of stakeholders vs shareholders align. But shareholder priorities may not always be the same as key stakeholders who don’t hold shares.
What do shareholders value

Short-term profit

Because of their active financial interest in a company, shareholders heavily value profits in the near term.

Long-term growth

That said, strategically minded shareholders don’t want to see a company sacrifice long-term growth for a quick profit.

Influence over the governance of the firm

Shareholders want to feel they have some level of control regarding an organization’s directions and decisions as it can affect their own monetary gains. 

Minimize investment risk

Because shareholders have put their own money on the line for a company’s success, they want to feel that the company is a risk averse  investment that’s likely to reward them for their contribution.

Increase stock value

The higher a company’s stock value, the higher the earnings for shareholders.

Recognizing and rewarding those that add value to a company

Like stakeholders, shareholders also want to feel recognized and rewarded for adding value to a company — even if that value may be purely financial.

Using performance evaluations to solve strategic issues

Also like stakeholders, shareholders want to feel that strategic issues are solved in a timely and effective manner so that they don’t become lasting problems that could affect the longterm strategic growth strategy.

10 Differences Between a Stakeholder vs. Shareholder

Difference between stakeholder vs shareholder

To highlight and summarize the divide between stakeholders and shareholders, here are 10 key differences to remember.

 

1. Shareholders own shares in a company while stakeholders have only a vested interest in the company.

2. Shareholders are primarily concerned with making profit while stakeholders are also concerned with how the company affects their lives.

3. Shareholders can sell their shares at any time while stakeholders do not necessarily have shares or an ability to de-invest at will.

4. Shareholders elect the board of directors while stakeholders may not have this power.

5. Shareholders may not be directly affected by internal company decisions while stakeholders often are.

6. Shareholders may have less influence or involvement than stakeholders in the day-to-day operations of a company.

7. The interests of shareholders and stakeholders may align in some ways, but rarely are they one and the same.

8. Shareholders may have no legal obligation to a company while stakeholders may have contractual obligations.

9. Shareholders can lose money if the stock price goes down while stakeholders typically only lose money if the company fails altogether.

10. Shareholders receive dividends while stakeholders do not traditionally receive dividends.

Stakeholder vs. Shareholder: Which Role is More Important?

The debate about whether companies should focus on serving stakeholders or shareholders has been going on for decades. It’s even led to a pair of competing theories relating to which is more important.

Stakeholder Theory

Stakeholder theory holds that an organization’s purpose is to serve the interests of its stakeholders, not just its shareholders. The shareholders are just one type of stakeholder, and they are not always the most important ones. Stakeholders could be employees, customers, or suppliers, and even non-individual entities, such as the community and the environment.

This theory has been used to support various corporate social responsibility (CSR) initiatives, such as environmental protection and employee rights. It has also been used to challenge traditional ideas about the role of corporations in society.

 

Shareholder Theory

Shareholder theory (also known as stockholder theory) is the idea that a company’s primary responsibility is to generate profits for its shareholders.

This theory stands in contrast to the more traditional view that companies have a duty to a wide range of entities, including employees, customers, and the community.

According to the theory’s creator Milton Friedman, shareholders are the only group with a legitimate claim on a company’s profits. He argued that managers should not use company resources for charitable or other non-profit purposes, as this would reduce the amount of money available for shareholders.

While Friedman’s theory has been highly influential, it has also been criticized for putting profits ahead of other important considerations. Critics argue that companies have a responsibility to wider society, and that maximizing shareholder value may not always be in the best interests of long-term growth or sustainable profitability.

Stakeholder vs Shareholder: What It All Means for your Business

Stakeholders are not truly “versus” stakeholders. Both play an important role in thriving companies.

For a company and related individuals to succeed, stakeholders and shareholders must both excel. Strategic cooperation will ensure continuous improvement in meeting set objectives and expanding a company’s reach to new areas of growth.

Ultimately, a shared emphasis on individuals in both categories will safeguard the future, bringing focus as needed to innovation, product development, expansion, profitability, culture, company health, and more.

To learn more about shareholder and stakeholder rights, and other investment insights, visit our insights page.

 

 

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