In the previous post, “What is a Stakeholder?” we defined the term ‘Stakeholder’ and differentiated it from ‘Shareholder’. Now, we are going to look at 6 common examples of stakeholders that are found in business. We will look at 3 types of internal stakeholders and 3 types of external stakeholders.
Definition of Stakeholder
To remind you; a stakeholder is any person or group that is influenced by, or influences, an organisation. The organisation should do its best to keep them informed and happy.
There are two types of stakeholders: internal and external.
Internal Stakeholders
Internal stakeholders are directly involved in the business processes. As the name suggests, they are found inside the business. Examples of internal stakeholders include employees, management, directors and shareholders.
Remember: a stake is either an interest, right or legal claim over something. As we look at the different types of stakeholders, we will also look at what kind of stake each example has in a business.
Employees as Stakeholders
Employees have a direct stake a company. They invest a significant amount of time and energy in it and expect a fair return on their investment. A business’s success depends on the performance of its workers, and they depend on it for their income. Therefore, a well-managed company considers the opinions and concerns of its employees when deciding on its mission, vision and strategies.
What stake do employees have?
In any organisation, there are many things that employees have an interest in. For one, they have an interest in their health and safety within the workplace, especially in industries such as mining and construction. They are interested in professional growth opportunities. They have an interest in the ethics of a business; people around the world are becoming more interested in working for companies with good reputations. As a return on investment on their time and effort, workers want to earn decent wages.
Employees also have workplace rights and legal claim as specified by the laws of different countries. In South Africa, companies are guided by legislation such as the Labour Relations Act, Employment Equity Act, and Compensation for Occupational Injuries and Diseases Act (COIDA) in terms of how they should deal with their workers.
Managers as Stakeholders
Managers oversee processes and mediate between shareholders, directors and employees. They contribute towards making operational decisions, devising strategies and ensuring their successful implementation.
What stake do managers have?
With that said, managers are also employed by companies and therefore have a similar stake as employees. The difference is that they have more responsibilities, earn a higher income, and usually have better working conditions than the general staff. They also have a special interest in employee performance and satisfaction because it is their duty to optimize both.
Shareholders as Stakeholders
Shareholders are individuals or organisations who own shares in a business. This happens as a result of contributing capital towards the starting and running of the company. They play a key role in business strategy. It is the responsibility of major shareholders, especially, to ensure that the company is managed properly.
In large corporations, shareholders do not manage the day to day business. The board of directors does this on their behalf. However, shareholders often need to approve decisions that have an impact on the company’s goals and overall performance. They also make important decisions regarding internal and external stakeholders.
What stake do shareholders have?
Primarily, shareholders have an equity interest in the company. They have invested capital and are interested in the business’s profitability and ability to grow its market share. As anyone directly involved in the business, they also have rights and legal claim.
External Stakeholders
External shareholders are not directly involved in the functions of the business, but either influence it, or are influenced by it. Examples of external stakeholders include customers, host communities, governments and suppliers.
Customers as Stakeholders
Customers are the purchasers of goods and services. They trade their money for what the company is selling. Therefore, you too are a stakeholder in whatever company you purchase from. Like other customers, you expect to buy the best quality products at the best prices.
Some believe that businesses exist to serve their customers; as the saying goes, ‘The customer is always right.’ With that in mind, you should note that while customers exist outside of the business, they are especially important stakeholders.
What stake do customers have?
Customers have an interest in the quality of products or services offered, as this determines the value for their money. In some cases, for example in medicine, quality can be the difference between sickness and health. Many consumers are also becoming more interested in the ethical conduct of businesses.
Customers also have rights which are guarded by legislation. In South Africa, consumers are protected by the Consumer Protection Act (CPA) and the National Credit Act.
Communities as Stakeholders
Businesses operate within communities, and it is important that they do not negatively impact them. Instead, they should have a positive effect on the quality of life, environment and economies of the areas they are based in.
Communities are therefore major stakeholders in the businesses located in them. They are impacted by a wide range of things, including job creation, economic development, health, and safety. The entry of a large corporation can hurt small businesses and change the price of real estate in the area.
What stake do communities have?
Communities expect to benefit from business activity by means of job creation, improved quality of living, improved infrastructure, access to goods and services, and community development programs. In return, businesses have locations to operate in and access to a local workforce. Ideally, businesses and communities should be assets to each other.
Governments as Stakeholders
Businesses contribute towards the Gross Domestic Product (GDP), job creation and economic development, and are therefore assets to governments. Not only do companies pay taxes as entities, but their employees also pay income tax as individuals.
What stake do governments have?
Because of the things mentioned above, governments have a big stake in the success of businesses. In fact, they can be considered as primary stakeholders, because they benefit directly from profits generated by the enterprises.
In return, companies operate within legal frameworks that protect their rights, and ensure ethical practices and fair trade. This occurs through legislation and government agencies which enforce it.
Other Articles Related to This
To read the other articles related to stakeholders and social responsibility, you can click on the following links:
- What is a Stakeholder in Business?
- Name 5 Components of Corporate Social Responsibility (CSR)
- What is the Triple Bottom Line in CSR? 3Ps Simply Explained
- Benefits of CSR (or CSI) to the Business – Positive Impact
- 10 Disadvantages of CSI to the Business – Negative Impact
References
Corporate Finance Institution. What is a Stakeholder? https://corporatefinanceinstitute.com/resources/knowledge/finance/stakeholder/ [2020/04/20]
Lumen Candela. Business Stakeholders. https://courses.lumenlearning.com/boundless-management/chapter/business-stakeholders/ [2020/04/20]
Pearse Trust. 2018. Roles & Responsibilities Of A Company Shareholder. https://www.pearse-trust.ie/blog/roles-responsibilities-of-company-shareholder [2020/04/28]
