Stakeholder : Meaning, Importance, Types, Concerns & Management

Who is Stakeholder?

A stakeholder can be an individual, a group, or an organization with a vested interest in the activities or decision-making of an organization, a corporation, or a project. The term “stakeholder” represents two terms, ‘stake’ and ‘holder’. Here, ‘stake’ means having an interest, a legal claim, or a right in the activities of an entity. On the other hand, ‘holder’ means having ownership or being the proprietor of an entity. As stakeholders have a stake in an organization, they can either be members or have no official affiliation. Further, they can directly or indirectly influence corporations’ activities or projects. For successful business operations, stakeholder support is very crucial.

Geeky Takeaways:

• A stakeholder is someone who has a vested interest in an organization and can either be impacted or impact (both positively and negatively) the operations and performance of an organization.
• Stakeholders are usually investors, customers, employees, suppliers, trade unions, governments, and communities.
• Stakeholders of any entity can be categorized into two groups, Internal and External.
• Among all the stakeholders, shareholders are the ones that the entity should be cognizant of.

Why are Stakeholders Important?

1. Alignment of Interests: Stakeholders often have diverse interests and objectives related to the organization or project. Engaging with stakeholders helps ensure that their interests are understood and considered in decision-making processes.

2. Accountability and Transparency: Stakeholders hold the organization accountable for its actions and performance. Their involvement promotes transparency in decision-making processes, as stakeholders may request information, provide feedback, or raise concerns about the organization’s activities.

3. Risk Management: Stakeholders can have a significant impact on an organization’s reputation, operations, and success. By identifying and engaging with key stakeholders, organizations can better anticipate and mitigate potential risks, such as negative public perception, regulatory challenges, or disruptions in the supply chain.

4. Support and Resources: Stakeholders can provide valuable support, resources, and expertise to the organization. For example, investors may provide financial capital, customers may purchase products or services, and communities may offer infrastructure or talent.

5. Innovation and Growth: Stakeholders often bring diverse perspectives, ideas, and experiences to the table. By involving stakeholders in decision-making processes, organizations can tap into this collective wisdom to drive innovation, foster creativity, and identify new opportunities for growth and development.

Types of Stakeholders

In organizations or projects, different types of stakeholders are connected either directly or indirectly. Some of the common types of stakeholders include,

1. Customers: The end goal of any business is to satisfy its customers. They expect businesses to deliver goods or services of value.

2. Employees: Businesses or any entity can run due to the effort and time given by the employees. Their hard work is a contribution to the business. Usually, employees are project stakeholders, i.e., they work on a project that is related to their job.

3. Owners: The equity and capital are offered to a business by the owners. They own the company. They are the ones who set the organizational goals.

4. Investors: The shareholders of an organization who invest in that organization are the investors. Their main purpose is to generate financial returns from their investment (ROI). They often receive the financial reporting of the organization they invest in. Further, they can receive voting power in that organization.

5. Creditors: These are banks and bondholders who lend money to the organization for its operations and creditors receive their money back with interest.

6. Suppliers: The vendors from where the raw materials and goods are taken by the business, are the suppliers. They have an interest in the business and projects that the company or organization pursues.

7. Communities: When a business succeeds or fails, the community gets affected as it is the location where the business is being run. The organization is responsible for providing jobs and tax revenue for the local economy. For consumers and investors, ESG (environment, social, and governance) is an important factor that corporations should follow.

8. Governments: The regulating of companies and collecting taxes from companies and employees is done by the governments.

Internal Stakeholders vs External Stakeholders

Basis	Internal Shareholders	External Shareholders
Definition	Internal stakeholders are individuals or groups that are directly connected to the organization and have a vested interest in its success.	External stakeholders are individuals, groups, or entities that are outside the organization but are affected by its actions, decisions, or outcomes
Extent of Involvement	Internal stakeholders are actively involved in the organization’s day-to-day operations, decision-making processes, and strategic direction.	External stakeholders are not part of the organization’s internal structure and do not participate directly in its operations or decision-making processes.
Affiliation	Internal stakeholders are part of the organization’s internal structure and are bound by employment contracts, shareholder agreements, or governance responsibilities.	External stakeholders have interests that are distinct from those of the organization’s internal stakeholders. They may interact with the organization as customers, suppliers, partners, regulators, or members of the broader community.
Types	Internal stakeholders include employees, manager and executives, shareholders and owners, board members, etc.	External Shareholders include customers, suppliers, creditors, regulators, communities, etc.

Issues Concerning Stakeholders

1. Communication: Effective communication is crucial for engaging stakeholders and addressing their concerns. Issues can arise when there is a lack of clear, timely, and transparent communication between the organization and its stakeholders. This can lead to misunderstandings, mistrust, and dissatisfaction among stakeholders.

2. Conflict of Interest: Stakeholders may have competing interests or objectives that conflict with each other or with the goals of the organization. Managing conflicts of interest requires careful navigation and negotiation to find mutually acceptable solutions that balance the needs of different stakeholders.

3. Power Dynamics: Power imbalances among stakeholders can influence decision-making processes and outcomes. Issues may arise when certain stakeholders, such as powerful investors or government regulators, exert disproportionate influence over the organization, potentially marginalizing the voices of other stakeholders.

4. Lack of Engagement: Organizations may fail to actively engage with stakeholders or involve them in decision-making processes, leading to feelings of exclusion or neglect. This can result in disengagement, resistance, or opposition from stakeholders who feel their concerns are not being heard or addressed.

Stakeholders vs Shareholders

Basis	Stakeholders	Shareholders
Meaning	Stakeholders are individuals, groups, or entities that have an interest or stake in the activities, decisions, or outcomes of an organization.	Shareholders are individuals or entities that own shares or stocks of a company, making them partial owners of the organization.
Involvement	Stakeholders are involved with the organization in various capacities beyond financial investment.	Shareholders are owners of the company and have a financial interest in its profitability and growth.
Examples	Employees seeking job security and fair wages, customers expecting quality products or services, communities concerned about environmental impacts,	Individual investors, institutional investors (such as mutual funds or pension funds), and venture capitalists who hold shares of the company’s stock.

How to Manage Stakeholders?

As stakeholders are an important part of any business, managing their needs and satisfying them requires effective planning and consideration. Four steps are followed for managing stakeholders: identifying, analyzing, prioritizing and engaging with stakeholders.

1. Stakeholder Identification: The initial step for managing stakeholders is to identify the potential individuals or groups who will be impacted due to business operations and project initiatives. For instance, if a company establishes a new plant in a new location, the stakeholders who will be affected are employees, communities, government authorities, suppliers and the shareholders of the company. The company should be aware of the interest and concerns of their stakeholders to maintain the relationship with them.

2. Stakeholder Analysis: After the stakeholders are identified, the nest task is to analyze them. Here, the company has to conduct interview, surveys, and focus group discussions to understand the needs and interest of the stakeholders. The main objective is to determine the expectations and requirement of each stakeholders. For instance, the employees might require job security with better working conditions while the customers might require quality goods and services.

3. Stakeholder Prioritization: The next step is to prioritize the stakeholders’ needs. All the needs are not important for every organization. Different organization have different priority for their stakeholders. For instance, in a product based company, customer satisfaction is utmost important than the employees’ demands. In a public sector organization, the governments regulations are of utmost important.

4. Stakeholder Engagement: The final step in managing stakeholder is to engage them in the business operations. This can be done by emails, phone calls or holding meetings with the high prioritized stakeholder group. Collaborating with the stakeholders, understanding their requirements, addressing their concerns is important for maintaining a good relationship with them. If the concerns are not heard and ignored, the company might risk of losing their support.

Stakeholder – FAQs

Which group of stakeholder is the most important?

Different organization and projects have specific goals and objectives and based on these, different groups of stakeholders are important.

What type of stakeholders are the shareholders?

Shareholders are usually external stakeholders and they have financial interest over the success of the business. Further, shareholders also can be the decision makers of the company and act as the internal stakeholders.

If companies are not able to manage their stakeholders, what will happen?

If companies fail to manage their stakeholders effectively, they might risk losing their support. This will lead to company’s financial loss and cause reputational harm. For instance, if the company ignores the demand of its employees, they may take up a strike which might cause a huge loss to the company as operation of the business would come to a halt and revenue would not be generated.