What are the stakeholders of a business?

Written by john lister Google
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What are the stakeholders of a business?
Pollution affecting local residents is an example of stakeholder interests (Jupiterimages/Comstock/Getty Images)

The term stakeholders refers to a broad category of anyone who has an interest in a business. The main reason for using the term is to distinguish between people who own the business (shareholders) and those who are affected by its actions in other ways. Both business practice and business law often try to deal with the potential conflict between shareholder and stakeholder interests.

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Shareholder

A shareholder is somebody who owns or part owns the business. Depending on the type of business this could be an individual or small group (running as a sole trader o partnership), a small group of owners of a private company, or the shareholders of a public company. Private owners will often be primarily motivated by attempting to make profits, while with public companies the people running the firm may be legally required to concentrate on maximising shareholder value. This is mainly about making money, but incorporates a long-term view: for example, making big profits through cutting corners on safety or breaking the law might not count as maximising shareholder value because it could affect future profits if the company is fined or loses customer goodwill.

Stakeholders

"Stakeholders" is a much wider category. It includes shareholders, but also includes people such as management, employees, customers, suppliers and finance providers. It also includes people who don't deal directly with the business but are affected by it, such as the local community, which could be affected by noise or pollution. Stakeholders are often broken down into internal (shareholders, directors managers and employees) and external (customers, suppliers and the community.)

Social responsibility

Some people believe a business has a responsibility (morally if not legally) to recognise and try to serve the interests of stakeholders rather than just trying to maximise shareholder value. Businesses often use the term corporate social responsibility to refer to any actions they take to serve these interest. Such actions can conflict with shareholder value, complement it, or even both, and the interaction between the two can be complicated and disputed. For example, a manufacturer that tried to cut its pollution to serve the interests of the community might be accused of failing to maximise shareholder value because it is spending more than it needs to by using more expensive methods. On the other hand, the switch of production methods could gain goodwill among potential customers and lead to positive media coverage, both of which might boost revenues in the long term, benefitting shareholders.

Law

The UK does not have specific laws that force companies to follow the principle of corporate social responsibility in the same way that public company management must try to maximise shareholder value. However, numerous laws deal with specific issues that affect stakeholders, such as employment law protecting workers or product safety laws protecting consumers. Sometimes governments try to influence a company's behaviour towards stakeholders in other ways such as offering tax advantages for certain business actions. The extent to which government should try to force or influence companies to serve stakeholders rather than just shareholders is an ongoing subject of political debate.

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