All companies have stakeholders - and most have shareholders. Despite how central these terms are to business, many of us don’t actually know what they mean. Shareholder and stakeholder have very different definitions that impact everyone in the world.

Did you know, for example, that you are a stakeholder of Apple? Read on to find out how.

What Is A Shareholder?
A shareholder is someone who owns shares in the company. This can be an individual, company, or institution. Once they have invested in shares, they are a partial owner of the company and are represented by the board of directors. A shareholder has invested money and wants the company to succeed for financial reasons. 

Shareholders have been at the centre of trade for many years. The Friedman Doctrine, or ‘shareholder theory’, defined business until very recently. Friedman argued the CEO is employed by the shareholders to make a profit. Generally, it is better for them to stick to making money and let their clients choose how to spend it. However, this view has become outdated. Now, there is less emphasis on shareholder profits.

Although shareholders have a financial stake in the company, they are not too committed in the long term. They might not be that attached to the values of a company (especially if they own shares in multiple others). They are able to sell their shares if the company’s profits decrease and move on. Unless the company is private or owned by an individual, shareholders are generally not responsible for its debts. 

What Is A Stakeholder?
On the other hand, stakeholders are a much broader group. It includes anyone who has a ‘stake’ in the organisation or is impacted by the actions of the company. Shareholders are one type of stakeholder, as they are affected by the company’s profitability. However, there are other types of stakeholder including employees, clients, and suppliers of the company. A key stakeholder in a company is the CEO whose income and reputation both depend on their success.

In recent times, the definition of stakeholder includes an even wider group. This is because companies are increasingly led by Corporate Social Responsibility (CSR) concerns. With a broad view, stakeholders include anyone affected by the company’s environmental and social decisions. This may be local (such as a company’s contribution to the local community) or global (such as a company’s pollution targets). 

This view of stakeholders as a key part of business is increasingly common. Moving on from Milton Friedman’s ‘shareholder theory’, Edward Freeman promoted ‘stakeholder theory’. The similar names are deceptive as these are opposites. With his book on stakeholder theory, Freeman argued a company’s main responsibility is to their stakeholders. This means companies exist for more than making a profit. 

In 2019, Business Roundtable declared for the first time that they would put stakeholders first. The group includes many high-profile CEOs including Jeff Bezos of Amazon and Tim Cook of Apple. Before this statement, they had vocally prioritised shareholders since 1997.

Unlike shareholders, some stakeholders are committed long-term to the company. They sometimes don’t even have the choice about whether to be involved. For example, communities impacted by the actions of a company do not always ‘opt in’. 

What are the key differences?
We’ve made a handy table to help you remember the difference:

Shareholders

Stakeholders

Own shares in the company.

Have a stake in the company (financial or social).

Focus on profitability and stability.

Have a range of concerns that depend on role - including social and environmental issues.

Can buy or sell shares with short-term commitment.

May have no choice in being a stakeholder. 

Promoted by Milton Friedman

Promoted by Edward Freeman.

Formed the basis for most economic decisions in the 20th century.

Form the basis for many economic decisions today.

Are also stakeholders of an organisation.

Are not always shareholders of an organisation.

 

In short, shareholders have a financial stake in the company, while stakeholders are driven by a wider range of concerns. Given the broad meaning of ‘stakeholder’, it could be argued that we are all stakeholders to every corporation in the world. Whether you prioritise shareholders or stakeholders depends on many factors, but it is always important to know the ethos of your company.

Lucy Palmer

Written by Lucy Palmer

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