Shareholder vs Stakeholder: Introduction
When I started my learning journey on investments, I had some difficulties to get the difference between a stakeholder and a shareholder. Not only these two words look alike but the difference is subtle.
As a business owner, it’s important to understand the various parties that can potentially impact your company. Two key groups that you may encounter are shareholders and stakeholders. While these terms are often used interchangeably, they actually have distinct definitions and can represent different interests. In this article, we’ll explore the differences between shareholders and stakeholders and how they relate to your business.
This is my simple definition of a shareholder, also known as a stockholder, is a person or entity that owns shares in a company. Shareholders are essentially owners of the company, and they have a financial stake in its success or failure. Shareholders are entitled to a portion of the profits that the company generates, as well as the right to vote on certain business decisions at shareholder meetings. Yu can find a longer definition of a shareholder on Wikipedia.
I wrote an article on what I like to call “The Compounding Miracle” and why you should become a shareholder as early as possible.
A stakeholder, on the other hand, is any individual or group that has an interest in a company. This can include shareholders, but it can also encompass a wide range of other parties, such as employees, customers, suppliers, local communities, and even the environment. Stakeholders are interested in how the company is managed and how it impacts them and their surrounding community. More details on Wikipedia.
Difference between a Shareholder and a Stakeholder
The main difference between a shareholder and a stakeholder is their level of ownership and financial interest in the company. Shareholders own a portion of the company and have a direct financial interest in its success or failure. Stakeholders, on the other hand, may not have a financial stake in the company, but they still have a vested interest in its actions and outcomes.
For example, an employee may be a stakeholder in a company, but they do not own any shares. They may be concerned with issues such as job security, benefits, and opportunities for advancement. On the other hand, a shareholder is primarily concerned with the financial performance of the company and maximizing their return on investment.
The following table shows the difference between a shareholder and stakeholder side by side.
|Definition||Person or entity that owns shares in a company||Individual or group that has an interest in a company|
|Level of ownership||Own a portion of the company||May not have a financial stake in the company|
|Financial interest||Direct financial interest in the company’s success or failure||May not have a financial stake in the company, but still have a vested interest in its actions and outcomes|
|Priorities||Typically prioritize financial performance and maximizing return on investment||May have a wider range of priorities that extend beyond just financial performance|
|Decision-making power||Entitled to vote on certain business decisions at shareholder meetings||May not have formal decision-making power, but can still influence business decisions through other means (e.g. public opinion, consumer boycotts, etc.)|
Shareholder vs. Stakeholder Priorities
One key difference between shareholders and stakeholders is their priorities. Shareholders are typically more focused on financial performance and maximizing their return on investment. They may prioritize actions that increase profits and share value, even if it means potentially sacrificing other considerations such as employee well-being or environmental sustainability.
Stakeholders, on the other hand, may have a wider range of priorities that extend beyond just financial performance. For example, employees may prioritize job security and fair treatment, while customers may be concerned with the quality and reliability of the company’s products or services. Local communities and the environment may also be important stakeholders for a company, and their priorities may include issues such as sustainability, social responsibility, and community involvement.
Balancing Shareholder and Stakeholder Interests
One challenge that business owners often face is balancing the interests of shareholders and stakeholders. On the one hand, shareholders expect a return on their investment and may push for actions that prioritize profits over other considerations. On the other hand, stakeholders may have a wider range of concerns that extend beyond just financial performance.
One approach that some businesses have adopted is known as stakeholder capitalism. This approach prioritizes the needs of all stakeholders – not just shareholders – in business decision-making. The goal is to create a more sustainable and equitable model that considers the interests of all relevant parties, including employees, customers, communities, and the environment.
In summary, shareholders and stakeholders are two important groups that can impact a company. Understanding the differences between stakeholders and shareholders can help you make informed business decisions that consider the needs and interests of all relevant parties. While shareholders are primarily concerned with financial performance, stakeholders may have a wider range of concerns that extend beyond just the bottom line. By taking a holistic approach and considering the needs of all stakeholders, you can create a more sustainable and successful business.
Let me know if these definitions of a shareholder and a stakeholder was useful for you. It is always a pleasure to read from you.