Every business has an owner. Some have many owners, known as shareholders. Beyond ownership, a broader group of individuals, known as stakeholders, also hold an interest in the company.
It’s important to gain a clear understanding of who your stakeholders are and how their interests align with your company’s values and goals.
Here are the most common types of stakeholders and their varying levels of participation, and the significance of different stakeholder interests.
What is a stakeholder?
A stakeholder is any individual, entity, or group with a vested interest in the potential benefits or harm that may result from a business or project’s success or failure.
There are several types of stakeholders, each with different priorities and levels of participation. For example, employees can be stakeholders who have an interest in job security and are impacted by their employers’ actions. Other stakeholders, like the communities where a business operates, are affected by a company’s decisions in a more indirect way, but they can still experience effects that can shape their social, economic, and environmental landscape.
Stakeholders vs. shareholders
Stakeholder is a broader term than shareholder; shareholders are a specific type of stakeholder, but not all stakeholders are shareholders.
Whereas a stakeholder is any person or entity with an interest in a company, shareholders mainly have a financial interest because they invested capital by purchasing shares or units of equity ownership.
In contrast, a community member could be a stakeholder in a local company, but is not a shareholder unless they buy a share of that company.
Internal vs. external stakeholders
Although internal and external stakeholders both have a vested interest in a company’s actions and outcomes, internal stakeholders have a more direct stake than external stakeholders.
Internal stakeholders, also known as key stakeholders or primary stakeholders, are more directly involved with a company’s daily operations and have more influence over that organization’s decisions. Employees, board members, and investors are examples of internal stakeholders.
External stakeholders like suppliers and communities are still important but they have less influence on the decision-making processes within a company or project.
How do businesses manage stakeholders?
Entrepreneurs often try to manage stakeholders to align the various interests and make decisions that best serve all parties involved. Steps in the stakeholder management process include:
- Stakeholder analysis. This strategy involves identifying stakeholders and gathering information about their interests and level of involvement with your organization.
- Stakeholder prioritization. Prioritize your major stakeholders over secondary stakeholders based on which individuals or entities have more influence on your business or a project’s outcome.
- Stakeholder engagement.Engaging stakeholders involves developing a communication plan to manage expectations, share important updates, and seek feedback.
Types of stakeholders
Here’s more about some of the different stakeholders that can influence a company or a project’s progress:
Customers
Customers have an interest in a company whose product or service fulfills a specific need. As external stakeholders, customers affect companies’ decisions indirectly through their purchasing power and feedback.
Customers are key stakeholders and their willingness to purchase can change a company’s bottom line for the better or worse. Likewise, customers are impacted by a company based on the quality of its products or services, as well as its customer service.
Employees
Employees are internal stakeholders with a direct stake in the success of an organization or a project’s outcome, based on their interest in continued employment and financial security.
Business owners and managers must understand the needs and interests of their employees to motivate them and increase employee productivity and retention. While managing external stakeholders, like customers and suppliers, is essential, the success of your company relies even more on the people involved in its daily operations.
Investors
This stakeholder group includes debt holders like banks and equity investors with an ownership stake. Investors have a direct interest in the companies and projects they invest capital in, with the expectation of receiving a financial return.
Investors are internal stakeholders who regularly receive financial reports and can influence organizations in various ways, including through shareholder voting powers. Other stakeholders, such as lenders and bondholders, have contractual rights that can influence a company’s actions.
For example, a bank lender can determine how a company spends loan proceeds and when the loan needs to be repaid with interest. Similarly, bondholders make bond covenant agreements that can require a company to take actions, like preparing specific financial reports or restricting it from activities like taking on more debt.
Suppliers
These external stakeholders are vendors that provide companies with supplies and depend on them for success. For example, a vendor that sells medical equipment to medical professionals has a vested interest in a health care company that purchases its supplies.
The relationship between suppliers and companies makes them stakeholders in each other. Suppliers can have an impact on companies based on their ability to supply goods and services at prices the buyers can afford. Companies can impact suppliers by choosing whether to purchase from them. Suppliers are indirect stakeholders with less influence on decision-making than more direct stakeholders like investors or employees.
Governments
Government agencies are external stakeholders that have an impact on companies through corporate governance—the process by which companies are directed and regulated. Governments collect taxes from companies and fees for permits and licenses. Examples of stakeholders in this category include federal agencies like the US Internal Revenue Service or the Environmental Protection Agency, as well as city or state governments.
Federal governments are interested in companies and projects succeeding based on the potential increase in gross domestic product (GDP)—a measure of the market value for all products and services produced by a country over a specific period of time. Research your industry and region’s governmental rules and regulations to ensure compliance.
Board members
Some companies—particularly public ones—have a board of directors that supervises the company’s managers, business activities, and major decision-making processes. Board members are key stakeholders with an internal and direct relationship to companies. A board member has a high influence on business outcomes and their interest lies in maintaining the organization’s values, reputation, and financial success.
Communities
Although indirect and external, community members are important stakeholders who can affect and be affected by companies.
For example, a successful company can increase economic development and job creation in their community. On the other hand, businesses can have a negative influence on communities through actions like displacing local businesses or contributing to pollution.
Communities that express concerns and object to new businesses can have a significant and negative impact on a company’s growth. Ecommerce and brick-and-mortar merchants must develop stakeholder management strategies to understand the needs of the relevant physical and virtual communities, and how their businesses can add value to those communities.
What are stakeholders FAQ
What is the role of a stakeholder?
The role of a stakeholder is to influence the actions of a company or project based on that stakeholder’s particular interest. The role changes depending on the stakeholder’s relationship with an organization. For example, an employee is a more direct internal stakeholder than an outside supplier.
What are stakeholders and why do they matter?
Stakeholders are individuals and entities with an interest in a company or project. Business owners need to develop a strategy for identifying and managing stakeholders because they have the power to positively or negatively affect a business or project.
What is a stakeholder analysis?
Stakeholder analysis is gathering relevant information about your company’s potential stakeholders and their interests. Businesses can prioritize the major stakeholders with the most power over their decision-making and develop a clear communication plan for keeping stakeholders informed and aligned with your company’s overall goals or a specific project plan.
