What is a Stakeholder in Business?

What is a Stakeholder?

In business, a stakeholder is any individual, group, or party that has an interest in an organization and the outcomes of its actions. Common examples of stakeholders include employees, customers, shareholders, suppliers, communities, and governments. Different stakeholders have different interests, and companies often face trade-offs in trying to please all of them.

Why Stakeholders Matter

Engaging with stakeholders is vital for managing risk, gaining support, and achieving success across projects and operations. Effective stakeholder management includes:

• Conducting stakeholder analysis
• Creating a communication plan
• Addressing concerns and expectations
• Monitoring stakeholder satisfaction over time

Managing stakeholder relationships is particularly important in project management, ESG (Environmental, Social, Governance) initiatives, and strategic planning.

Types of Stakeholders

Understanding who your stakeholders are (and what they care about) is essential for managing relationships and achieving project or organizational goals. Below are the six main types of stakeholders:

1. Customers

Stake: Product/service quality and value

Many would argue that businesses exist to serve their customers. Customers are actually stakeholders of a business, in that they are impacted by the quality of service/products and their value. For example, passengers traveling on an airplane literally have their lives in the company’s hands when flying with the airline.

2. Employees

Stake: Employment income and safety

Employees have a direct stake in the company in that they earn an income to support themselves, along with other benefits (both monetary and non-monetary). Depending on the nature of the business, employees may also have a health and safety interest (for example, in the industries of transportation, mining, oil and gas, construction, etc.).

3. Investors

Stake: Financial returns

Investors include both shareholders and debtholders. Shareholders invest capital in the business and expect to earn a certain rate of return on that invested capital. Investors are commonly concerned with the concept of shareholder value. Lumped in with this group are all other providers of capital, such as lenders and potential acquirers. All shareholders are inherently stakeholders, but stakeholders are not inherently shareholders.

4. Suppliers and Vendors

Stake: Revenues and safety

Suppliers and vendors sell goods and/or services to a business and rely on it for revenue generation and ongoing income. In many industries, suppliers also have their health and safety on the line, as they may be directly involved in the company’s operations.

5. Communities

Stake: Health, safety, economic development

Communities are major stakeholders in local businesses. They are impacted by a wide range of things, including job creation, economic development, health, and safety. When a big company enters or exits a small community, there is an immediate and significant impact on employment, incomes, and spending in the area. With some industries, there is a potential health impact, too, as companies may alter the environment.

6. Governments

Stake: Taxes and GDP

Governments can also be considered a major stakeholder in a business, as they collect taxes from the company (corporate income taxes), as well as from all the people it employs (payroll taxes) and from other spending the company incurs (sales taxes). Governments benefit from the overall Gross Domestic Product (GDP) that companies contribute to.

Internal vs. External Stakeholders: How to Classify

Stakeholders are commonly classified into two groups:

• Internal stakeholders work within the organization, such as employees, managers, and owners.
• External stakeholders are affected by the organization’s performance but are not part of it, such as customers, suppliers, investors, and regulators.

Both groups can influence and be influenced by a company’s decisions, performance, and outcomes.

Stakeholder vs. Shareholder

It’s important to distinguish between these two terms:

• Stakeholder refers to anyone with an interest in the organization’s success or failure.
• Shareholder refers specifically to individuals or institutions that own shares in a company.

While all shareholders are stakeholders, not all stakeholders are shareholders.

Stakeholder Prioritization

Companies often struggle to prioritize stakeholders and their competing interests. Where stakeholders are aligned, the process is easy. However, in many cases, they do not have the same interests. For example, if the company is pressured by shareholders to cut costs, it may lay off employees or reduce their wages, which presents a difficult tradeoff.

Jack Ma, founder and former CEO of Alibaba, has famously said that he ranks stakeholders in the following priority sequence:

1. Customers
2. Employees
3. Investors

Read more about Jack Ma’s stakeholder priorities here.

Many other CEOs tout shareholder primacy as their number one interest.

Much of the prioritization will be based on the stage a company is in. For example, if it’s a startup or an early-stage business, then customers and employees are more likely to be the stakeholders considered foremost. If it’s a mature, publicly traded company, then shareholders are likely to be front and center.

At the end of the day, it’s up to a company, the CEO, and the board of directors to determine the appropriate ranking of stakeholders when competing interests arise.

Additional Resources

Thank you for reading CFI’s guide to Stakeholders. To keep learning and advancing your career, the following CFI resources will be helpful:

• Corporate Structure
• Stakeholder Impact Analyses
• Prioritizing Internal Stakeholders
• Shareholder Primacy
• See all ESG resources