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Shareholders vs. stakeholders: Overview, examples and differences
While shareholder and stakeholder are two words that sound very similar, the differences are quite often neglected in the world of stocks, especially by investors who are just getting started.
In this article, we’ll dive deeper into the differences between shareholders and stakeholders, covering the roles of each position, and we’ll also go over some examples. Let’s get started!
In this article, we’ll dive deeper into the differences between shareholders and stakeholders, covering the roles of each position, and we’ll also go over some examples. Let’s get started!
Quote
“A healthy corporation acts on the interests of its stakeholders and customers.”
Big ideas
- Shareholders own part of the equity of a publicly traded company, or in other words - a shareholder is someone who owns shares in a company.
- Stakeholders are interested in the long-term success of a company for reasons different from stock appreciation.
- Shareholders are always stakeholders in a company. However, stakeholders don’t always hold the company’s shares.
Shareholders and stakeholders are two different groups of individuals or entities that have an interest in a company. The interests of shareholders and stakeholders differ in their level of direct involvement and primary interests.
Shareholders are typically more driven by the financial returns they can get through capital appreciation. They have a direct financial stake in a company, and the relationship between shareholders and a company is contractual - it is based on owning shares/equity.
On the other hand, stakeholders are focused on the bigger picture, and their interests include not only financial performance but also ethical, environmental and social concerns. Stakeholders may not have direct ownership of the company’s equity.
Let’s go through some examples based on everything covered so far:
Shareholders are typically more driven by the financial returns they can get through capital appreciation. They have a direct financial stake in a company, and the relationship between shareholders and a company is contractual - it is based on owning shares/equity.
On the other hand, stakeholders are focused on the bigger picture, and their interests include not only financial performance but also ethical, environmental and social concerns. Stakeholders may not have direct ownership of the company’s equity.
Let’s go through some examples based on everything covered so far:
Terry owns 2000 shares of a public company traded on a stock exchange. He purchased the shares on the stock market, and he has a financial interest in the company. Terry is mainly focused on the price of the stock itself and the profitability of the company, as those are the main factors that directly impact the performance of his investment.
As a shareholder, Terry can participate in shareholder meetings and vote on corporate decisions based on the number of shares he holds. His relationship with the company, however, is defined only by his stock ownership.
As a shareholder, Terry can participate in shareholder meetings and vote on corporate decisions based on the number of shares he holds. His relationship with the company, however, is defined only by his stock ownership.
Stakeholder Example
Ana is an employee of XYZ, Inc. She works on the assembly line, and her livelihood depends on the job with the company.
She is also a customer of the company, as she purchases the products her company makes for her household. Anne is a stakeholder in XYZ, Inc. despite her lack of share ownership because she is directly affected by the company's operations as both an employee and a customer.
Her relationship with the company goes beyond financial interest as it includes concerns about her job, the surrounding environment and the products she uses.
She is also a customer of the company, as she purchases the products her company makes for her household. Anne is a stakeholder in XYZ, Inc. despite her lack of share ownership because she is directly affected by the company's operations as both an employee and a customer.
Her relationship with the company goes beyond financial interest as it includes concerns about her job, the surrounding environment and the products she uses.
Recap
Shareholders, also referred to as stockholders sometimes, partly own a company through shares that they have purchased. They are subject to capital gains or losses, can receive dividends, can attend annual meetings, and they can also exercise their voting rights during such events (if they own common shares and not preferred shares).
The main focus of shareholders is the short-term return on investment. Their goals are strictly financial as they have a direct financial stake in a company, and the relationship with the company is contractual - it is based on owning shares.
Stakeholders can perform their role without owning shares of the company they are involved with. They typically have long-term interests and contribute in as many ways as possible to ensure that the company is successful while also being conscious and acting in the best interest of both internal and external stakeholders, as well as shareholders.
The main focus of shareholders is the short-term return on investment. Their goals are strictly financial as they have a direct financial stake in a company, and the relationship with the company is contractual - it is based on owning shares.
Stakeholders can perform their role without owning shares of the company they are involved with. They typically have long-term interests and contribute in as many ways as possible to ensure that the company is successful while also being conscious and acting in the best interest of both internal and external stakeholders, as well as shareholders.
FAQ
Q: Is a stakeholder an owner?
A stakeholder is anyone who is affected by a company’s decisions, regardless if they have any ownership in that company or not.
Q: Are all stakeholders also shareholders?
Yes, stakeholders can be shareholders if they own shares of the company. However, there are stakeholders that don’t hold any shares, and this is not a requirement for stakeholders.
Q: Are shareholders and stockholders the same thing?
Yes, stockholders is another word for shareholders, and it has the same meaning.
Q: Do all companies have stakeholders?
Yes, all businesses have stakeholders of both types - internal and external stakeholders. Despite that, not all businesses have shareholders, as some companies don’t issue shares
Q: Are employees considered shareholders?
Employees are considered to be stakeholders in the company. However, they can also be labelled as shareholders if they own stock of the company they’re working for.
Q: What are examples of shareholders and stakeholders?
An example of a shareholder is any individual or entity that holds shares within a company. For example, if John holds 100 shares of company ABC, he is a shareholder.
An example of a stakeholder can be any individual or entity that affects or is affected by the decisions, products and services of company ABC. This includes employees, customers, suppliers, local communities, the government, etc.
An example of a stakeholder can be any individual or entity that affects or is affected by the decisions, products and services of company ABC. This includes employees, customers, suppliers, local communities, the government, etc.
Q: Who cannot be a stakeholder?
Competitors are not considered to be stakeholders. Although competitors may directly or indirectly impact an organisation, they are not stakeholders. They decrease market share and reduce the customer base, affecting an organisation's profit margin.
Q: What are the two types of shareholders?
The two types of shareholders are common shareholders and preferred shareholders. Common shareholders enjoy voting rights and can exercise those rights when there is a voting matter.
Preferred stockholders, on the other hand, have an advantage when it comes to the profit distribution of a company. While they don’t have voting rights, preferred stockholders are entitled to fixed dividend rates, even if a company's profitability is at stake.
Preferred stockholders, on the other hand, have an advantage when it comes to the profit distribution of a company. While they don’t have voting rights, preferred stockholders are entitled to fixed dividend rates, even if a company's profitability is at stake.
Q: What is the shareholder theory?
The shareholder theory, also known as the stockholder theory, focuses on the idea that a company's main responsibility is to maximise value for its shareholders - the emphasis is on generating profit and shareholder wealth. Higher-level management also accepts the duty to act in the best interest of shareholders at all times.
Q: What is the stakeholder theory?
In contrast, the stakeholder theory asserts that a company should consider the interests of all stakeholders who are affected by or can affect a company.
In other words, the focus is on balancing the interests of all stakeholders and creating long-term value for everyone. It also advocates for a different approach that considers the broader impact that company activities may have on stakeholders. Stakeholders may include employees, suppliers, customers, communities and even the environment.
In other words, the focus is on balancing the interests of all stakeholders and creating long-term value for everyone. It also advocates for a different approach that considers the broader impact that company activities may have on stakeholders. Stakeholders may include employees, suppliers, customers, communities and even the environment.
