What is a stakeholder?
In the corporate world, a stakeholder is any party, individual, or group of people or organizations with a deep-rooted interest in an entity and its actions. The stakeholders can influence several aspects of the business. Examples of stakeholders are the investors, employees, shareholders, suppliers, the community, government, trade associations, customers, and suppliers.
Different stakeholders have different interests over the business entity. Usually, the company tries to impress all stakeholders, which sometimes leads to trade-offs.
Internal Vs. External Stakeholders
The stakeholders of an entity can be either internal or external. The vested interests can either be affected by or affect the entity.
Internal stakeholders have a direct relationship with the company, such as employees, investors, and owners. External stakeholders are not directly linked to the entity but are affected directly or indirectly by the company’s outcomes. Examples of external stakeholders are creditors, suppliers, and public groups.
Downstream Vs. Upstream Stakeholders
The upstream stakeholders are directly or indirectly involved in launching products into the market. Downstream stakeholders are categorized as the group of people responsible for supporting the launched products, usually the sellers and consumers. Both categories of stakeholders are crucial to the well-being of the company.
Stakeholders Vs. Shareholders
Stakeholders are not necessarily shareholders. Shareholders are a particular group of stakeholders who have invested financial interests in a company. Shareholders take part in important decisions regarding the company, elect board members, and can sell their shares.
Other categories of stakeholders do not enjoy such privileges. For instance, a customer or a supplier cannot vote on important decisions of the company nor elect the directors.
What is the Stakeholder Theory?
Dr. R. Edward Freeman formulated the stakeholder theory. The theory states that every business has a goal of maximizing its shareholder wealth. The stakeholder theory is beyond maximizing the shareholder wealth as the only goal for the company.
The theory suggests that the manager’s role is to work towards achieving the goals of every stakeholder rather than focus on a single group of stakeholders such as shareholders. However, although it is a good move, it is hard to achieve because different shareholders have competing interests. The basic idea of the theory is that business entities must create value for every stakeholder, not only the shareholders.
Problems Arising with Stakeholders
One of the problems that companies with many stakeholders experience is that their interests do not align. In most cases, direct stakeholders’ interests conflict. For instance, a dispute will arise between the employee’s company and its shareholders.
The goal of any business enterprise and its shareholders is to maximize profits to enhance the value of the shareholders. The company may cut down on labor costs to maximize profits, which upsets the employees.
Stakeholders play a vital role in any company. For instance, they will convince potential prospects to develop an interest in the property, support investors, have a lot of influence in launching a product, and much more.