Learn the key differences between stakeholders versus shareholders, and improve your corporate management knowledge.
Picture this: In the bustling digital marketplace, an up-and-coming app development company is thriving, drawing the attention of freelancers from around the globe. In this hypothetical scenario, two groups are keeping a close eye on the company's progress — stakeholders and shareholders.
At first glance, these terms might seem interchangeable, echoing the similarity of their roles in a business. But peel back a layer and you'll discover that they each play distinct parts in the tapestry of a company's story.
In this guide, we’ll define stakeholders and shareholders, unraveling these definitions to unveil key differences between the two.
What’s a shareholder? 🤔
A shareholder, or stockholder, is someone who owns shares in a public company, making them financially vested in its profitability. An individual shareholder likely hopes the company’s stock price spikes, for instance, because then this shareholder’s equity improves — this raises the value of their stock price so they can sell it for more money.
The more shares a shareholder owns, the more investment they have in the company (a higher stake in it). Shareholders also have voting rights and the ability to affect how the company is managed. Unsurprisingly, shareholders are considered stakeholders because they have a stake in the company’s success — but stakeholders aren’t necessarily shareholders (more on that later).
Types of shareholders 👀
Depending on the type of stock bought, you’re one of two shareholder types:
- Common shareholders own common stock, which gives shareholders part ownership of a company and yields a higher rate of return in the long term. These shareholders can elect board of director members and vote on company policies.
- Preferred shareholders own preferred stock, which generally yields lower in the long term but provides shareholders with a definite yearly dividend payment. These stockholders usually can’t elect board members or vote on policies.
What’s a stakeholder? 🤝
A stakeholder is anyone that’s affected by a company or any of its initiatives. They have a stake in the company or a project’s success, but they don’t necessarily own any company shares.
All stakeholders fall into one of two categories:
- Internal stakeholders include all company employees and those closely tied to the company, like shareholders.
- External stakeholders include outside parties involved in the company’s initiatives, like vendors, clients, and investors.
Business and project managers might conduct a stakeholder analysis during strategic and project planning to determine all relevant stakeholders, showcasing interests and influence via stakeholder mapping.
Stakeholders vs. shareholders: Key differences ❌
The fact that shareholders are stakeholders but stakeholders often aren’t shareholders makes it difficult to clearly differentiate the two, but here are a few key differences:
- Shareholders own a part of the company (via shares/stocks), while stakeholders may or may not own shares
- Shareholders are often not personally affected by the company’s day-to-day decision-making and activities, while most stakeholders are
- Shareholders typically care more about a company’s long-term success, while stakeholders care more about a company’s short-term success
Shareholder theory vs. stakeholder theory 🤓
Milton Friedman introduced the shareholder theory in the ’50s. He stated that a company ought to focus on creating wealth for its shareholders, arguing that companies are socially responsible regarding keeping shareholders happy.
This starkly contrasts the stakeholder theory, which Edward Freeman introduced in 1984. Freeman argued that companies ought to focus on keeping all stakeholders — rather than just shareholders — happy. In doing so, a company creates a community of satisfied employees, customers, and suppliers, among other interested parties. According to the stakeholder theory, companies should mainly look at creating wealth for all stakeholders instead of focusing just on shareholders.
To illustrate the difference, say a marketing company wants to scale its business, and the marketing team is writing a proposal brief to showcase how to do so. They could focus their tactics on keeping shareholders happy — so making as much money as possible while grinding employees down and delivering a poor work-life balance. Or, they could focus on juggling the needs of all stakeholders. They might not make as much money as quickly, but they will keep employees engaged and sticking around.
Find more stakeholders with Contra 👏
Grow your freelance business with Contra, an Independent-forward hub that connects you with the right clients — commission-free. You could also join Contra’s Slack community to meet fellow freelancers, gleaning their insights on stakeholder and shareholder management.
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