The stakeholder theory is a theory of organizational management and business ethics that accounts for

multiple constituencies impacted by business entities like employees, suppliers, local communities,
creditors, and others.[1] It addresses morals and values in managing an organization, such as those
related to corporate social responsibility, market economy, and social contract theory.

Stakeholder theory was first described by Dr. F. Edward Freeman, a professor at the University of Virginia,
in his landmark book, “Strategic Management: A Stakeholder Approach.” It suggests that shareholders
are merely one of many stakeholders in a company. The stakeholder ecosystem, this theory says, involves
anyone invested and involved in, or affected by, the company: employees, environmentalists near the
company’s plants, vendors, governmental agencies, and more. Freeman’s theory suggests that a
company’s real success lies in satisfying all its stakeholders, not just those who might profit from its
stock.

Stakeholder Theory is a view of capitalism that stresses the interconnected relationships between a
business and its customers, suppliers, employees, investors, communities and others who have a stake in
the organization. The theory argues that a firm should create value for all stakeholders, not just
shareholders.

In 1984, R. Edward Freeman originally detailed the Stakeholder Theory of organizational management
and business ethics that addresses morals and values in managing an organization. His award-winning
book Strategic Management: A Stakeholder Approach identifies and models the groups which are
stakeholders of a corporation, and both describes and recommends methods by which management can
give due regard to the interests of those groups.

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Stakeholder vs. Shareholder: How They’re Different & Why It Matters

by Peter Landau | Jan 31, 2019

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.

For example, a shareholder is always a stakeholder in a corporation, but a stakeholder is not always a
shareholder. The distinction lies in their relationship to the corporation and their priorities. Different
priorities and levels of authority require different approaches in formality, communication and reporting.

It’s important that these terms are well-defined to avoid confusion. Even if you think you know what
they mean, take a moment to refresh yourself.

what is a shareholder and what is a stakeholder?

What Is a Shareholder?

A shareholder is a person or an institution that owns shares or stock in a public or 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.

Depending on the applicable laws and rules of the corporation or shareholders’ agreement, shareholders
have the right to do the following (and more):

Sell their shares

Vote on those nominated for the board

Nominate directors

Vote on mergers and changes to the corporate charter

Receive dividends

Gain information on publicly traded companies

Sue for a violation of fiduciary duty

Buy new shares

Shareholders have a vested interest in the company or project. That interest is reflected in their desire to
see an increase in share price and dividends, if the company is public. If they’re shareholders in a project,
then their interests are tied to the project’s success.

The money that is invested in a company by shareholders can be withdrawn for a profit. It can even be
invested in other organizations, some of which could be in competition with the other. Therefore, the
shareholder is an owner of the company, but not necessarily with the company’s interests first.

What Is a Stakeholder?

We’ve written about what a stakeholder is before, and the definition still stands. A stakeholder can be
either an individual, a group or an organization impacted by the outcome of a project. Therefore, they
have an interest in the success of a project. They are either from the project group or an outside sponsor.
There are many people who can qualify as a stakeholder, such as:

Senior management

Project leaders

Team members on the project

Customers of the project

Resource managers

Line managers

User group for the project

Subcontractors on the project

Consultant for the project

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.

Stakeholders tend to have a long-term relationship with the organization. It’s not as easy to pull up
stakes, so to speak, as it can be for shareholders. However, their relationship to the organization is tied
up in ways that make the two reliant on one another. The success of the organization or project is just as
critical, if not more so, for the stakeholder over the shareholder. Employees can lose their jobs, while
suppliers could lose income.

Differences Between Stakeholders and Shareholders

Before getting into the differences, there is a similarity between stakeholders and shareholders. That
similarity is their importance: in recent years, corporations have begun to be answerable to their
stakeholders and shareholders alike. Unlike in the past, where corporations were mostly interested in
issues related to their shareholders.
There has been a rise in something called corporate social responsibility (CSR), which encourages
companies to take the interest of all stakeholders into consideration when making decisions, rather than
just the interests of its shareholders.

Differing Viewpoints

CSR is important because in most cases, stakeholders and shareholders have different viewpoints.
Stakeholders are more concerned with longevity of their relationship with the organization and a better
quality of service. That is, people working on a project or for an organization are likely more interested in
salaries and benefits than profits.

Shareholders, on the other hand, are more concerned with stock prices, dividends and results. They have
a financial interest in the success of the organization, not the individuals who work there. Shareholders
are more likely to advocate for growth, expansion, acquisitions, mergers and other acts that will increase
the company’s profitability.

How They’re Categorized

Shareholders are a subset of the larger stakeholders’ grouping, but don’t take part in the day-to-day
operations of the company or project. Shareholders do have some rights as owners of the company,
which are detailed in the company’s charter, such as the right to inspect financial records—especially if
they’re concerned about how the company is being run by its top-tier executive suite.

There are some organizations that don’t have shareholders, such as a public university, which has many
stakeholders. These include students, families, professors, administrators, employers, state taxpayers,
the local and state communities, custodians, suppliers and more.

In Summary

The shareholder, again, is a person who owns shares of the company. A stakeholder has a stake in the
company. Therefore, shareholders are owners and stakeholders are interested parties. As stated earlier,
shareholders are a subset of the superset, which are stakeholders.
Shareholders include equity shareholders and preference shareholders in company. Stakeholders can
include everything from shareholders, creditors and debenture holders to employees, customers,
suppliers, government, etc.

The biggest difference between the two is that shareholders focus on a return of their investment.
Stakeholders are more concerned about the performance of the company.

Related: Stakeholder Management Strategies & Tools

Should You Focus on Shareholders or Stakeholders?

That’s not so easy a question to answer, and one that has been a debated forever by business analysts.
Should businesses be solely focused on increasing profits or do they have an ethical responsibility to the
environment? These two paths are called the shareholder theory and the stakeholder theory.

Shareholder Theory vs. Stakeholder Theory

Shareholder theory claims corporation managers have a duty to maximize shareholder returns.
Economist Milton Friedman introduced this idea in the 1960s, which states a corporation is primarily
responsible to its shareholders.

Stakeholder theory, on the other hand, notes that it’s the business managers ethical duty to both
corporate shareholders and the community at large that the activities that benefit the company don’t
harm the community.

This doesn’t mean that shareholder theory is an “anything goes” drive to lift profits. This process must
be legal and done through non-deceptive practices. It doesn’t necessarily exclude charitable works,
either. However, social responsibility is structured into the stakeholder theory, but the benefits must also
meet the corporation’s bottom line.

Therefore, the best theory for you and your company or project is dependent on what your main
interests are. But it’s most likely that you’ll proceed with a hybrid, as both theories serve different
aspects of business.
Whether you’re working for a shareholder or a stockholder, in order to keep them informed, you’ll need
a tool that can help you track progress and report back that their needs are being met.
ProjectManager.com is a cloud-based project management software that gives you real-time data to
make the right decisions at the right time. See how it can help you by taking this free 30-day trial today!

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