Only two letters separate the word “shareholder” from “stakeholder”, but those two small letters have a big impact. While they are often used interchangeably, the truth is there’s a big difference between shareholders and stakeholders.
By definition, a shareholder is also a stakeholder. The inverse is not always true — that is, a stakeholder is not always a shareholder. This article will explore those differences and break down shareholder vs. stakeholder theory once and for all.
What is a stakeholder?
A stakeholder is anyone with an interest in the success of your organization or company. There are internal and external stakeholders.
Stakeholders can be:
- Board of directors
From a project management perspective, a stakeholder is anyone involved in your project’s outcome. That typically includes project managers, project team members, project sponsors, executives, customers, users, and third-party vendors. Stakeholders have a vested interest in the project and will be affected by it along the way. Their input can directly impact the outcome.
Whether we’re talking about project management specifically or your organization as a whole, it’s a good idea to practice stakeholder management and constantly communicate with stakeholders to collaborate effectively.
What is a shareholder?
A shareholder is anyone who owns at least one share of a company. Shareholders can be:
- An individual
- A company
- An institution
Because shareholders have invested money in exchange for a share or shares of the company’s stock, they have a financial interest in its profitability. This also means that shareholders have certain rights, including the right to vote on the company’s leadership.
Shareholders of a publicly-traded company are considered owners, although they are not responsible for the debts. However, shareholders of private companies, sole proprietorships, and partnerships are liable for company debts.
Namely, shareholders care about the success or failure of significant projects as well as the financial returns a project may bring as they have an interest in the company.
What is the difference between shareholders and stakeholders?
The difference between shareholder and stakeholder lies in the individual’s relationship to the company or organization. As we described the interests of shareholders, all shareholders are also stakeholders. However, not all stakeholders are shareholders as some of them might not own any shares of the company. Now, let’s continue with the other differences in detail.
Shareholders generally tend to have a short-term relationship with the company than the average stakeholder. A shareholder can choose to sell their shares and, therefore, their stake in the company at any time. This may happen for a few reasons. For instance, if the company’s share prices increase, shareholders may choose to sell their stocks for a profit. Alternatively, if the company value takes a hit and the stock price falls, shareholders may sell to cut their losses.
On the other hand, stakeholders are typically more deeply invested in the company than their shareholder counterparts. Their interests are often more long-term and day-to-day changes can impact stakeholders much more. For example, the average company employee has more at risk than a shareholder who can simply sell their stake in the company whenever they wish.
Shareholder vs. stakeholder theory
Shareholder theory vs. stakeholder theory looks at how companies interact with and hold themselves accountable to shareholders and stakeholders. One viewpoint is that a company’s first responsibility is to its shareholders, and therefore its number-one priority should be to increase profits as much as possible.
Shareholder theory was first introduced in the 1960s by Milton Friedman. Friedman argued that the cyclical nature of business hierarchy meant that corporations are primarily responsible to their shareholders.
On the other hand, stakeholder theory suggests that companies prioritize ethics and create value for all stakeholders, not just those who hold shares. Stakeholder theory was first put forth by Dr. Edward Freeman in the 1980s. Along with the rise of corporate social responsibility or CSR, stakeholder theory has helped create better working environments and benefits for employees, particularly in industries with poor working conditions.
How to manage shareholders and stakeholders with Wrike
Stakeholders and shareholders inherently have different priorities. However, one thing they have in common is a need to be managed appropriately. Wrike helps you do just that by providing a centralized information repository and the tools to share and communicate effectively day to day with both shareholders and stakeholders.
Wrike is a go-to solution for project-based organizations, as it helps project managers, their teams, and their stakeholders stay organized and in touch with a project as it moves through its life cycle.
In Wrike, you can also create custom dashboards specific to a particular group of stakeholders, including shareholders. Through these dashboards, both stakeholders and shareholders can see the progress of important projects, allocated budgets, and team workloads as well as risks. It allows transparency and seamless collaboration.
If you’re ready to learn more about how Wrike can help your organization, get started with a free two-week trial today.