What Are the Stakeholders in a Business?

A stakeholder is an individual or group that has a legitimate interest in a company, organization, or business; the Stanford Research Institute defines stakeholders as “those groups without whose support the organization would cease to exist. Stakeholders can affect or be affected by the actions (or inactions) of a business, and they can exist both within and outside of a business.

The impact of a business on its stakeholders is a bit like the effect of dropping a stone into a pond. The decisions and actions of the business have a ripple effect that can extend beyond the pond and even reach those who are standing far away on the shore.

Internal stakeholders are groups or people who work directly within the business, such as managers, employees, and owners. Managers and employees want to earn high wages and keep their jobs, so they have a vested interest in the financial health and success of the business. Owners want to maximize the profit the business makes as compensation for the risks they take in owning or running a business.

Figure 1. The picture shows the typical stakeholders of a company. The stakeholders are divided into internal and external stakeholders.

External Stakeholders

External stakeholders are groups outside a business or people who don’t work inside the business but are affected in some way by the decisions and actions of the business. Examples of external stakeholders are customers, suppliers, creditors, the local community, society, and the government. Customers want the business to produce quality products at reasonable prices. Shareholders have an interest in business operations since they are counting on the business to remain profitable and provide a return on their investment in the business. Creditors that supply financial capital, raw materials, and services to the business want to be paid on time and in full. Federal, state, and local governments need businesses to thrive in order to pay taxes that support government services such as education, police, and fire protection. The local community has a stake in the business because it provides jobs, which generate economic activity within the community. Society as a whole (as well as the local community) is concerned about the impact that business operations have on the environment in terms of noise, air, and water pollution. Society also has an interest in the business with regard to the safety of the goods and services produced by the business. Suppliers need the business to continue to buy their products in order to maintain their own profitability and long-term financial health.

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In today’s hyper-transparent business world, in which corporates are held accountable by the media, the public and campaign groups, ‘authenticity’ is the primary factor behind a positive public image. A company’s objectives, character and ability to generate profits determine its overall authenticity. This, in turn, dictates its ability to grow both internally by increasing staff numbers, and externally by attracting investors or support from other organisations.

Investors and employees rank among the company’s stakeholders. Stakeholders encompass all individuals or groups who have a vested interest in the performance of the business. It is vital that organisations build healthy and balanced relationships with their stakeholders, as their level of authenticity is determined by how well they meet their stakeholders’ demands.

Consciously identifying, listening to, and acting on the priorities of each individual group of stakeholders is the foundation of constructing a strong reputation.

The roles of different types of stakeholders 

Stakeholders can be broken down into two groups, classed as internal and external. Each has their own set of priorities and requirements from the business.

Internal (primary) stakeholders

A company’s employees, managers and board of directors make up a business’s internal stakeholders. 

• Employees of the company are invested in the company’s performance to ensure they continue to be paid and retain their jobs. Depending on the nature of the business, employees may also have a health and safety focus. For many, alignment between their own sense of purpose and the aims of the business is also important.
• Shareholders are focused on a strong performance to maximise the returns on their investments. Traditionally, many businesses have followed a shareholder centric business model, but increasingly are realising that a broadening focus on all stakeholders makes better long-term business sense. 
• Managers are focused on project management and how individual elements or departments of the business are run. The degree of autonomy they have, level of influence over their teams, and support they are given to perform their roles are their key priorities.
• The board of directors is interested in maximising the profit the business makes and achieving a return for investors. Efficient business operations are therefore a prime focus for them.

External (secondary) stakeholders

External stakeholders include clients or customers, investors and shareholders, suppliers, government agencies and the wider community. They want the company to perform well for a multitude of reasons.

• Customers want to receive the best possible product or service. They may also want to see the business making a positive contribution to society and reducing its impact on the environment. 
• Suppliers want to see increased demand for the business’s products or services so that there is greater requirement for their own. 
• Governments and regulatory bodies want the company to follow laws, employ more people and uphold good financial practice to support the economy.
• Communities look upon the business as a source of local employment, supplier of local goods and services, and purchaser of local materials. They are also invested in the impact the business has on the immediate environment and its involvement in community projects.

Which stakeholders are most important?

Despite being grouped together, stakeholders are individuals, with specific needs and demands. They also may straddle different groups.

An employee may also be an investor. A politician may also reside in the community in which the company operates. Despite its best intentions, it is unrealistic for a company to satisfy the demands of all parties equally. It will regularly face scenarios in which it has to prioritise one stakeholder to the detriment of another.

Should investors wish to cut costs, the company may have to reduce the wages of its employees or let some go altogether. Similarly, they may have to end a relationship with a trusted supplier in favour of a more competitive price to maintain profitability.

To ensure optimum stakeholder satisfaction, companies must identify their primary and most influential stakeholders. These are the ones they should be investing reasonable resources to engage with. 

This activity is known as stakeholder prioritisation and is based on three stakeholder features: 

• Power: how much weight they carry in the company’s operations
• Legitimacy: how they affect the company’s perception among the wider community
• Urgency: how quickly they demand action from the company.

Different companies will have varying business objectives, depending on their industry and size, and how long they have been established. This will cause them to prioritise stakeholder groups differently. 

For example, a multi-national corporation trading on the public market will likely prioritise its investors first. It wants to maximise profitability for its current investors in the hope of attracting new ones and increasing its share price. 

Meanwhile, a start-up or SME will be less concerned with attracting large-scale investment. It will focus instead on establishing good relationships with local suppliers, having a satisfied, loyal workforce and, most importantly, building a solid community customer base. 

How can companies prioritise their stakeholders?

As a general rule, stakeholder priority can be divided into three levels. The first and most important comprises employees, customers, and investors, without whom the business will not be able to operate. 

Secondary to them are suppliers, community groups and media influencers. Their individual relevance is determined by the performance of the company’s primary stakeholders and their response to it. 

Finally, there are regulatory bodies. Persistent failure to comply is problematic, but their demands are by and large consistent and straightforward to follow.

In addition to a company-wide stakeholder profile, each project within the company will have its own project stakeholders, which may need to be ranked differently. Project managers and assigned employees will be responsible for prioritising and satisfying their demands to ensure the programme’s success.

In the rapidly evolving business world, in which new issues are constantly surfacing and vying for supremacy, stakeholder roles are changing. There cannot, therefore, be a definitive ranking of stakeholder importance to a company. 

Instead, its decision-makers must embed constant stakeholder management into their day-to-day decisions. This is the only way to ensure maximum company-wide flexibility to meet constantly changing stakeholder demands.

Securing and maintaining stakeholder trust and satisfaction is a never-ending process. To win the continued commitment and support of their stakeholders, companies must remember the three elements on which they will be judged:

• Behaviour: How do you behave with your stakeholders?
• Communication: How do you listen to and interact with them?
• Performance: Do you achieve your intended objectives?