What Is a Stakeholder? Definition, Types & Examples

A stakeholder is a party who has any interest in an entity’s business, enterprise or project, and may be affected by its performance or outcome, states the Cornell Law School’s Legal Information Institute. That party could be a supplier, employee, investors including shareholders, the government or the community. In addition, customers may also be considered as stakeholders.

So being a stakeholder has to do with more than just money. If you operate a company or startup, you must learn the best stakeholder management strategies to deal with the various key stakeholders you will encounter in the course of doing business.

Generally, stakeholders have a vested interest in your business. Your activities not only affect them, but their activities may also affect you. However, the extent to which your company’s operations affect project stakeholders’ interests or are affected by their activities, depends on their roles.

Below are some examples of stakeholders, their roles and reasons why they are important to any company, according to the Corporate Finance Institute.

Suppliers are providers of raw materials for production or products for value addition or resale. Some may also provide services that help the company continue operating. Without them, the company cannot continue to operate.

On the other hand, if the business they supply products and services to stops functioning, they will lose the revenue they have been generating. Also, they may get affected by the health and safety standards of the organization they work with.

Customers are responsible for buying goods and services that a business entity produces and sells. So the quality and safety of those products or services affect them. Plus, if they don’t spend money to acquire those things, then the company will not make money, leading to failure.

Companies require the knowledge and skills of employees to operate on a daily basis. In exchange, employees receive financial compensation and other additional non-monetary benefits. They also get affected by the health and safety standards within the organization.

Investors include shareholders and lenders. Typically, shareholders own business stock based on the money they put in. In return for the money they have invested and the shares they own, they expect returns regularly and have a say in how things are run, depending on the kind of stock they own. On the other hand, lenders usually give the company money for its operations, and the business must pay back the debt at an agreed-upon interest rate within the specified time frame.

The government is also a major stakeholder in any business. The operations of the company impact the taxes that the government can collect in the form of payroll taxes from employees, sales taxes from the sale of products and services and corporate taxes from the business revenue.

In addition, the success of a business affects the gross domestic product (GDP), which is the total value of goods and services a nation produces. So, it is in the government’s best interest to have a GDP that is as high as possible.

A local community is an important stakeholder of any business. For starters, it determines the reception a business may receive when it sets up operations in their preferred location. And that, in turn, affects whether the company can thrive in that area or not. That’s because the company operations can turn around the local community’s fortunes, and affect its health and safety in the long run.

For your stakeholder engagement activities to be successful, you need to understand the kinds of parties with whom you are dealing. Below are the various types of stakeholders.

Primary stakeholders tend to have a direct interest in your business and its performance. They may also have a financial stake in the company. In addition, their actions tend to affect the daily operations of the business.

Stakeholders in this category include customers, business owners, board of directors, employees, suppliers, shareholders, etc. For example, if the supply chain is hit by another pandemic, similar to the COVID-19 pandemic, your production may grind to a halt. In that case, neither your business nor the suppliers will make money.

On the other hand, secondary stakeholders have an indirect interest in your business. They may not have any monetary stake in it. Examples of secondary stakeholders include activist groups, trade associations, potential consumers, etc.

Internal stakeholders are those stakeholders within the organization who are directly affected by its performance and outcomes. They have a direct relationship through employment, investment or ownership. Without them, the business organization may not continue to function. So while suppliers may be primary stakeholders, they aren’t internal stakeholders.

However, the CFI says that employees, business owners and managers fall under the internal stakeholder category. So, your business must consider these parties when making decisions.

On the other hand, external stakeholders are those stakeholders outside the organizations that are directly and indirectly affected by your business’s performance. They include the government, suppliers, local community, lenders, competitors and customers.

Generally, whereas stakeholders are people who may have a direct or indirect interest in your business and its performance, shareholders or stockholders are investors who own some of the company stock and have a financial stake in the business.

If business sustainability is important to you, your corporate governance mechanisms should always include stakeholder analysis each time you embark on a new business project so you can identify what kind of stakeholders you will deal with. Then, you can develop a communication plan and a proper project management strategy for all the project team members who will share your brand messaging to enable them to achieve project success.