The difference between shareholders and stakeholders
/What is a Shareholder?
Shareholders and stakeholders are both associated with a corporation, but their interests in the organization differ. A shareholder is a person or entity that owns shares in the corporation. A shareholder is entitled to vote for the board of directors and a small number of additional issues, as well as receive dividends from the business and share in any residual cash if the entity is sold or dissolved.
There are two types of shareholders: common shareholders and preferred shareholders. A common shareholder owns the common stock of a corporation, which gives this party an ownership interest in the business and the right to vote for board members and certain other issues. A preferred shareholder owns the preferred stock of a corporation, which gives this party the right to receive a dividend from the corporation. These shareholders cannot vote on corporate matters, but do have a priority over common shareholders if the corporation were to be liquidated.
What is a Stakeholder?
Stakeholders represent a substantially more broad group, because they include anyone having an interest in the success or failure of a business. This group can include shareholders, but goes well beyond shareholders to also include creditors and customers, employees, the local community, and the government.
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Comparing Shareholders and Stakeholders
Shareholders are a subset of the larger group of stakeholders. Traditionally, shareholders have been considered more important than all other stakeholders in a business, since they own the entity and have rights to receive its cash flows under certain circumstances. The public view of the priority of shareholders over stakeholders is gradually changing, in light of the increasing impact of pollution by businesses on local communities and employees, as well as the impact of workforce reductions on local governments, communities, and employees. If this trend continues, corporations may find themselves under increasing pressure to make expenditures to please other stakeholders, resulting in reduced earnings per share that impact the wealth of shareholders. This means that the traditional wealth maximization objective of a business may become diluted over time, in favor of other initiatives more favorable to stakeholders.