Stakeholder
Term of the Day - 4 January 2024
Today’s Term is “Stakeholder”.
A stakeholder is essentially any party/person that has an interest in a company, and who can either affect or be affected by the business.
Here are some essential points to learn today:
A shareholder is just one type of stakeholder. Every shareholder is a stakeholder, but not every stakeholder is a shareholder.
The primary stakeholders in a typical corporation are its shareholders, lenders, investors, employees, customers, suppliers, the Government/Regulatory Authorities, the community/society etc.
Shareholders typically only have a direct ownership stake in the company through ownership of SHARES. See why the name is “SHARE-HOLDER”? They only hold shares (known as “stock” in some jurisdictions). So a shareholder will typically have just a financial interest in the company. We will discuss shareholders into a lot more detail in a separate Term of the Day.
Back to stakeholders. “STAKE-HOLDER”, as already defined above hold a stake (interest) in a business. For example:
- Lenders want to be sure the business is strong/liquid enough to pay back what is owed them on time
- Customers want the business to provide them with valuable products/services at the best possible price
- Employees want the company to provide them with a safe working environment and a good compensation package
- The Government/Regulatory Authority wants the company to comply with the relevant laws and pay their taxes, among others.
Stakeholder Management is therefore very essential for the Management of a company. The company should
- identify its stakeholders
- identify the power they have
- identify the interest they have in the business, and
- know how to balance these factors.
This will be the subject of another Term of the Day.
