Types of stakeholders
Stakeholders are individuals or groups with an interest in a project and can affect or be affected by its outcome. Since multiple parties are usually involved, proper identification and classification are essential.
1. Internal stakeholders
Internal stakeholders are directly affiliated with the organisation undertaking the project. They are employed by or invested in the organisation and are directly impacted by its activities. Examples include:
- Employees: Individuals working within the organisation.
- Owners: The individuals or entities that own the organisation.
- Board of Directors: The governing body of the organisation.
- Project Managers: Individuals responsible for overseeing the project.
- Investors: Individuals or entities providing financial support to the project.
2. External stakeholders
External stakeholders are not directly employed by or affiliated with the organisation but may be indirectly impacted by the project. They may have a vested interest in the project due to their relationships with the organisation or the industry. Examples include:
- Suppliers: Organisations that provide goods or services to the project.
- Customers: Individuals or organisations that purchase the project's outputs.
- Creditors: Entities that have lent money to the organisation.
- Clients: Individuals or organisations that have contracted with the organisation for the project.
- Intermediaries: Entities that facilitate transactions between the organisation and other parties.
- Competitors: Organisations that offer similar products or services.
- Society: The broader community that may be affected by the project's outcomes.
- Government: Regulatory bodies or government agencies with jurisdiction over the project.
Different between internal vs external stakeholders
Based on several studies, we can divide stakeholders into internal and external categories:
| Parameters |
Internal stakeholders |
External stakeholders |
| Meaning |
- They are directly involved in the organisation's operations
- Internal stakeholders have a direct impact on—and are directly affected by—the company’s performance and decisions
|
- They are groups or individuals outside the organisation but are affected by its activities
- External stakeholders influence and are influenced by the company's actions
- However, they are not directly involved in a company’s day-to-day operations
|
| Example |
- Employees
- Managers and executives
- Owners or promoters
- Shareholders
|
- Customers
- Suppliers and vendors
- Investors
- Creditors
- Government
- Regulatory bodies
|
Stakeholder examples
Stakeholders are individuals or groups who have a vested interest in an organisation or project. They can be categorised based on their relationship and expectations:
- Customers: Expect high-quality products or services that meet their needs and preferences.
- Employees: Seek meaningful work, career growth, and a positive work environment.
- Owners: Are responsible for the organisation's overall direction and financial performance.
- Investors: Seek financial returns and often have a say in major decisions.
- Creditors: Lend money to the organization and expect timely repayment with interest.
- Suppliers: Provide materials and products and are interested in the organisation's long-term success.
- Communities: Value the economic benefits, social impact, and environmental sustainability of the organisation.
- Governments: Collect taxes and regulate the organisation's operations.
What is the concept of stakeholder capitalism?
In the corporate world, “stakeholder capitalism” is an important concept. It states that organisations prioritise the interests and well-being of all their stakeholders, not just shareholders. This approach contrasts with the traditional shareholder-centric model, which focuses primarily on maximising profits for shareholders.
In stakeholder capitalism, the success of an organisation is measured not only by its financial performance but also by its contributions to the well-being of its:
- Employees
- Customers
- Suppliers
- Communities
- Environment
Why is stakeholder capitalism important for investors?
By picking the companies following the concept of stakeholder capitalism, investors can earn better returns and achieve their long-term value creation objectives. Let us see why:
1. Sustainable business practices
2. Customer loyalty and brand strength
- Stakeholder-focused companies prioritise meeting the needs of their customers.
- By doing so, they often build:
- Strong brand reputations
and
- Usually, such companies gain from:
- Repeat business
- Positive word-of-mouth referrals
- Increased market share
- Customer loyalty
3. Employee engagement and innovation
- Valuing employees as stakeholders leads to higher levels of:
- Engagement
- Satisfaction, and
- Retention
- Often, engaged employees contribute innovative ideas and solutions.
- This boosts competitiveness and helps companies achieve long-term growth.
4. Responsible financial management
- Companies practising stakeholder capitalism prioritise responsible financial management.
- They consider the interests of all stakeholders, including investors.
- Such companies are often involved in:
- Transparent reporting
- Prudent risk management
- Long-term strategic planning
- High levels of fiscal responsibility and accountability
- Often, these companies instil confidence among investors and easily attract business capital.
Also, read about the different types of shares issued by the companies to raise funds.
How are stakeholders different from shareholders?
People often use the terms ‘stakeholders’ and ‘shareholders’ interchangeably. However, both differ in scope and represent distinct groups involved with a company. Let us understand how:
Feature
|
Shareholders
|
Stakeholders
|
Ownership
|
Direct ownership of shares
|
Indirect or no direct ownership
|
Voting Rights
|
Have voting rights in company decisions
|
Generally do not have voting rights
|
Primary Interest
|
Maximizing financial returns
|
Diverse interests, including financial, social, environmental, etc.
|
Focus
|
Financial performance metrics (stock price, DPS, EPS)
|
Broader range of issues, including social responsibility, ethical conduct, and long-term sustainability
|
Influence
|
Direct influence through voting rights and shareholder activism
|
Indirect influence through activism, consumer behavior, regulatory pressure, and community support
|
Examples
|
Individual investors, institutional investors, mutual funds
|
Employees, customers, suppliers, creditors, government, community, and the environment
|
Conclusion
Stakeholders in a company include individuals and groups affected by its decisions and financial performance, such as employees, customers, investors, and regulators.
In stakeholder capitalism, businesses consider the interests of all affected parties, not just shareholders. This approach encourages sustainable practices and long-term value creation.
Do you wish to expand your market knowledge? Learn about share certificates today.
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