Shareholder vs stakeholder is the two most commonly used terms in the world of business. To improve your investing education, you must first be familiar with both these terms! Many people often use these terms interchangeably that ultimately leads to numerous confusion. My today’s post on shareholder vs stakeholder value will definitely be very helpful for new investors! Here, I have explained the definition, theory ethics, and examples of both these terms. Make sure you do not forget to check out the conflict between shareholders and stakeholders too. Now, take a moment to refresh yourself and learn more about shareholder vs stakeholder in-depth.
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The concept of shareholder value vs shareholder value is pretty much vast. Therefore, I have broken down these terms into small parts. Let us now compare and contrast the stakeholder and shareholder models of corporate governance.
- Longevity
One of the most common differences between shareholder vs stakeholder is its longevity! The relationship of shareholders with any company only lasts till the firm meets its expectations. While the relationship of stakeholders with a company is mostly for the long term. Shareholders can sell their equity and cut their losses in case the business goes into loss. However, stakeholders can never dump the company at such short notice. This is because if the business succeeds in the long term, they have more to gain!
- Different Viewpoints
The viewpoints of shareholders and stakeholders depend mostly on their interest in the company. Shareholders ask the company’s executives to carry out activities that have positive effects on stock prices. Shareholders always want their company to focus on expansion, acquisitions, and mergers to increase the company’s overall profitability!
On the other side, stakeholders mainly focus on longevity and better quality of service. These people are more interested in salaries and benefits than profits.
- Their Categorization
Shareholders are also known as a subset of the largest stakeholder grouping. Therefore, they do own a part of the company along with some basic rights. This includes voting rights, suing management if it doesn’t perform its duties properly, and more. But not all stakeholders are shareholders, they are only present in companies limited by shares.
- Corporate Social Responsibility (CSR)
Earlier, companies were answerable to only their shareholders and not stakeholders. But now, apart from shareholders company is answerable to other constituents in business. For instance, companies can create social welfare awareness programs for the community and ecosystem. This includes tree-plantation exercises, offering scholarships to members of the community, company-run charitable groups, and so on.
- Priorities
The main focus of shareholders is on the financial return of their investments. This can either be in the form of dividends or stock appreciation. On the other hand, stakeholders majorly focus on the company’s overall performance. This includes how the company treats its customers, partners, employees, etc.
- Varied Interests
Shareholders are mainly interested in the company’s stock-market valuation. In simple words, if the company’s share price increases, the shareholder’s value increase. Whereas stakeholders are primarily interested in the company’s performance for a wider variety of reasons.
- Project Management Influence
Both shareholders and stakeholders have varied interests based on their relationship with the organization. For example, stakeholders’ influence can directly increase the performance of the project. On the other hand, shareholder influence mainly aims to boost a company’s value while increasing its personal profit. Therefore, any project proposal is more likely to succeed if all the needs and expectations of stakeholders and shareholders are considered.
- Types
Shareholder is further divided into two types. This includes equity shareholders and preference holders. Even stakeholders are divided into two types. This includes internal stakeholders and external shareholders.
- Dimensions
Shareholders are single-dimensional whereas stakeholders are multi-dimensional in nature.
- Rights
Unlike stakeholders, shareholders have some rights outlined in the shareholder’s agreements. Some of the shareholder’s rights are listed down for you.
- They can buy and sell their shares simultaneously.
- Shareholders can nominate board members.
- They also have the right to vote during the election of board members.
- These people have the authority to sue management over violation of fiduciary duty.
Keep on reading to study shareholder theory vs stakeholder theory pdf in the next section.
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Now, let’s understand shareholder vs stakeholder theory ethics in detail. The theory of shareholder was first introduced in 1960 by Milton Friedman. The cyclical nature of business hierarchy came into the limelight because of him. It means that corporations are primarily responsible to their shareholders.
The theory of stakeholder was first introduced in 1980 by Edward Freeman. It states that companies prioritize ethics and create value for both stakeholders and shareholders. This theory has helped to create better working environments and benefits for employees working in poor conditions.
Basically, these terms give us an overview of how companies interact with and hold themselves accountable to shareholders and stakeholders.
You can keep on reading to know more about shareholder vs stakeholder primacy in detail.
The definition of shareholder and stakeholder is quite simple to understand. First, let us understand the definition of the terms shareholder and stakeholder individually.
- Shareholder: A person or an institution that owns shares or stocks in a public, private, or both operations is known as a shareholder. They can be:
- Owners
- Investors
- Employees
- Bondholders
- Customers
- Vendors
- Suppliers
These members are mostly referred to as members of a corporation. In fact, they also have a financial interest in the profitability of the organization or project.
- Stakeholder: A person who owns at least one share of any company is known as a stakeholder. They can be:
- An individual
- A company
- An institution
- Senior management
- Project leaders
- Team members on the project
- Customers of the project
- Resource managers
- Line managers
- User group of the project
- Subcontractors of the Project
- Consultant of the project
These members can also be either from the project group or an outside sponsor group. Thus, these people only have an interest in the success of a project.
In the end, I have explained both the terms with a few short examples.
- For instance, when a company performs financially very poorly, the vendors, employees, and customer directly gets impacted. Here, shareholders can simply sell their stocks and leave before the company shuts down.
But the stakeholders do not have the option to leave the company at its downfall. In case they are forced to leave the company, they cannot neglect the negative effects of the organization.
- For example, government agencies, sole proprietorships, partnerships, and non-profit organizations have stakeholders even if they don’t have shareholders. Other organizations like public universities don’t have shareholders but have stakeholders like faculty, administrators, etc.
FAQ
An employee is always an internal stakeholder as they have a direct relationship with the company.
Is An Owner A Stakeholder?
Yes, an owner can be a stakeholder, but a stakeholder cannot be an owner.
Shareholders are considered stakeholders because of the following two reasons.
- They participate in the ownership of the company.
- They can have made the concept of corporate social responsibility more popular
Any person, company, or institution that owns shares in a company’s stock can be called a shareholder.
The main difference between a stakeholder vs shareholder is as follows.
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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.
Conclusion
In my above-written article, we have studied shareholder vs stakeholder capitalism in detail. In simple words, a person who owns a share of the company is the shareholder. Whereas the one who has a stake in the company is a stakeholder. One of the biggest differences between both these terms is that shareholders focus on the profit gained by the company. And stakeholders are majorly concerned about the performance of the company. But both these terms can influence project management within a company in different ways. Thus, you can now easily increase the overall financial health of your company by understanding the difference between shareholder vs stakeholder.