These two paths are called the shareholder theory and the stakeholder theory. A shareholder is a person or an institution that owns shares or stock in a public or enrolled agents vs cpas private operation. They are often referred to as members of a corporation, and they have a financial interest in the profitability of the organization or project.

The success of the organization or project is just as critical, if not more so, for the stakeholder over the shareholder. Stakeholder analysis is an important element of planning that must be done by project managers to identify and prioritize stakeholders before the project begins. The words stakeholder and shareholder are often used loosely in business. The two words are commonly thought of as synonyms and are used interchangeably, but there are some key differences between them. These differences reveal how to appropriately manage stakeholders and shareholders in your organization.

• However, their relationship to the organization is tied up in ways that make the two reliant on one another.
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• However, shareholders are often most concerned with short-term actions that affect stock prices.
• Shareholders own part of the business, determined by the number of shares they own.

Different priorities and levels of authority require different approaches in formality, communication and reporting. Employees who purchase shares with a stock option are one example where both classifications would apply. Stakeholders cannot easily decide to remove their stake in the company. The relationship between the stakeholders and the company is bound by a series of factors that make them reliant on each other.

Beyond the dictionary definitions, other disparities characterize the stakeholders vs. shareholders distinction. Majority shareholders can steer a corporation’s direction dramatically, but its overall trajectory relies on its many minority shareholders too. Investors, venture capitalists, banks, fund managers and others who own company stock are classified as shareholders.

What’s the Difference Between Stakeholders and Shareholders?

Although stakeholders do not have a direct relationship with the company, they may be affected by the company’s actions or performance. A project management tool can help simplify the stakeholder management process. For example, Asana lets you create and assign tasks with clear due dates, comment directly on tasks, organize work into shareable projects, and send out automated status updates. That way, you can give stakeholders the information they need, when they need it.

According to economist Milton Friedman, this theory states that a company should focus on creating wealth for its stockholders. He claims that decisions regarding social responsibility, like how to treat employees, rest on the shoulders of stockholders rather than the company executives. He claims that since company executives are essentially employees of the stockholders, they are not obligated to any social responsibilities unless the stockholders decide otherwise. [3] The stakeholder theory was introduced by a business professor named Dr. R. Edward Freeman. According to Mr. Freeman, companies should not solely prioritize the stockholders but also focus on creating wealth for their stakeholders.

• They often have voting rights and play a crucial role in corporate governance by participating in decision-making processes such as electing board members and approving major company actions.
• We’ve written about what a stakeholder is before, and the definition still stands.
• Stockholders are focused on the short-term profit goals of the organization, while stakeholders make the company’s overall success their first priority and think long-term.
• It’s important to understand the unique requirements of each of your stakeholders.
• Try ProjectManager and get dashboards and reporting tools that track everything stakeholders and shareholders care about.
• Shareholders often focus on short-term fluctuations in a company’s stock price.

There are also community-wide implications that make everyone around a corporation a potential stakeholder in some way. Each amount paid by the original stockholder is reported as contributed capital within the equity section for stockholders on the balance sheet of the corporation. For example, employees want the company to remain financially stable because they rely on it for their income.

Key Terms

Mostly, stakeholders and shareholders alike are more interested in the big picture. However, during a presentation, you might get some questions thrown at you that will demand a deeper look. The money that is invested in a company by shareholders can be withdrawn for a profit.

What is a shareholder?

Shareholders provide the funds that allow companies to invest and innovate, while stakeholders have a stake in the company’s long-term performance. According to stakeholder capitalism, everything a corporation does must align with ethical, social and practical directives. However, it’s fair to say that for the vast majority of corporations, shareholder theory is much higher in mind. Now that you know the difference, how about a bridge that connects the two? Whether you’re managing stakeholders or shareholders, ProjectManager has you covered.

Shareholder vs. Stakeholder: What’s the Difference?

Investors will look at this decision and decide to move away from the company because doing business in an unprofitable area makes no sense at all. Stakeholders are any people, groups, or organizations which have a concern or interest in the performance of a corporation. They are affected by the objectives, policies, or actions that the corporation takes over the course of doing business.

Stakeholders are individuals, groups, or organizations that have a vested interest in a business and can affect and be affected by the business operations and performance. Therefore, stakeholders can be internal, such as employees, shareholders and managers—but stakeholders can also be external. They are parties that are not directly in a relationship with the organization itself, but still, the organization’s actions affect it, such as suppliers, vendors, creditors, the community and public groups. Basically, stakeholders are those who will be impacted by the project when in progress and those who will be impacted by the project when completed. It’s important to understand the unique requirements of each of your stakeholders.

Companies may issue another kind of stock called preferred stock, and owners of this could also rightly be termed shareholders. While some stakeholders are mainly concerned with a company’s performance for financial reasons, that isn’t always the case. A company’s customers can be stakeholders, as can government entities, which are supported by the company’s taxes and those of employees. A CEO is a stakeholder in the company that employs them, since they are affected by and have an interest in the actions of that company.