You may hear the terms “stakeholders” and “shareholders” used in the business world. While these words are frequently used interchangeably, they have two distinct meanings, and it’s important to differentiate them. While a shareholder is always also a stakeholder in a company, a stakeholder is usually not a shareholder. Each of these roles has its rights, responsibilities, and privileges associated with the company they’re connected to.
This guide provides a quick primer on the differences between stakeholders and shareholders and explains how each role relates to a business entity.
What is a shareholder?
A shareholder is a person, company, or institution that owns shares (at least one) of a company. This technically means they own part of that company. Shareholders are thus interested in seeing a company succeed and be profitable because this allows the company—and the stock that the shareholder owns—to appreciate. As shareholders, they can receive dividends from their shares or sell them.
A shareholder has a financial stake in the company, and their priority is its long-term financial success. If the shareholder were to sell their shares for more than they bought them for, they would make a profit. Here’s an example: An individual investor bought shares as part of their retirement portfolio and hopes the share price will increase in value.
Since they’re technically partial owners of the company, shareholders also have rights regarding certain aspects of its operations. For example, they have voting rights on certain topics that impact the company’s management—like who is nominated to a company’s board of directors or mergers and acquisitions. That said, shareholders don’t participate in or influence day-to-day business operations.
Finally, it’s worth noting that shareholders aren’t liable (legally or financially) for any debts that the company may accrue. They’re not corporate executives, but they can technically lose money if they buy a share and it depreciates.
What is a stakeholder?
Unlike a shareholder, a stakeholder doesn’t necessarily own stock in a company. Their interests in the company’s success aren’t related to stock performance or increased stock value. As such, they’re less concerned with the bottom line.
Nonetheless, a stakeholder does have some interest in a company’s performance. Stakeholders are often directly impacted by the completion of a company project. They may be internal stakeholders (work for the company or otherwise have a direct relationship with it) or external stakeholders (somehow impacted by the company’s operations even though they aren’t necessarily employees).
Here are some examples of different types of shareholders and how they might be affected by a company’s performance:
- Workers: A company’s workers may not own shares in the company, but they are still interested in its success. If the company does well, workers may get a bonus or pay raise, for example. Conversely, if the company does poorly, workers may face job cuts.
- Managers: Managers can be impacted by a company’s success similarly to workers, enjoying possible bonuses or pay raises—or facing budget cuts, hiring freezes, and possible job loss. When a company does poorly and budgets are tight, managers often have to make tough decisions on cutting costs.
- Customers: A company’s customers are also stakeholders. If they want to keep getting the goods or services that the company is providing, they need that company to stay in business. If you’ve ever loved a product only to have it discontinued, you know how inconvenient this can be.
- Consultants: Companies often hire consultants to lend their expertise for special projects. Consultants can be called on when a company is doing well or poorly. For example, if a company is suffering financially, a cost-cutting consultant may be called in.
- Subcontractors: Subcontractors rely on a company’s success similarly to workers. If the company is thriving, there’s plenty of work to go around.
- Suppliers or vendors: Companies rely on suppliers or vendors to provide raw goods and services to keep the company going. If a company goes out of business, these businesses will have lost a regular client and can likewise feel a financial pinch.
- Communities: Companies also impact the communities they serve and exist in. Say a major big-box retailer sets up a warehouse in a suburban area outside of a major urban center because the rent is cheaper. That warehouse will generate jobs, directly impacting the local community and its individuals.
Stakeholder vs shareholder: What’s the difference?
To further clarify the key differences between stakeholders and shareholders, here’s a quick side-by-side comparison to recap:
So, why do these differences matter? The general and financial interests of the stakeholder and shareholders are a major point of concern in discussions about modern corporate social responsibility (CSR).
CSR occurs when a company considers social and environmental concerns in its operations and planning. Here are some examples of CSR initiatives a company may take:
- Charitable giving to nonprofits
- Commitment to ensuring equality and diversity in the workplace (e.g., across sexual orientation, race, gender, religion, etc.)
- Implementing programs to reduce the company’s carbon footprint, for example, through recycling, reduced energy use, and more efficient supply chains
Modern consumers have become more vocal about calling for companies to practice good CSR. Shifting views on CSR have also changed how companies value and treat stakeholders and shareholders, resulting in two distinct models of business operations: the stakeholder theory and shareholder theory.
The right team will deliver results for both shareholders and stakeholders
Smart, modern-day companies know that both shareholder and stakeholder needs must be considered for long-term success. While shareholders invest in a company, buying stock and technically owning part of it, stakeholders are critical to its day-to-day operational success.
Building the right team will help you generate value for stakeholders and shareholders alike. Upwork puts a global pool of talent at your fingertips, allowing you to connect with independent professionals from around the world to help you deliver the results you’re looking for.
