Stakeholder v Shareholder Concept

The stakeholder concept argues that businesses should take account of its responsibilities to stakeholders rather than just focus on shareholders.

Reminder: The Difference Between Stakeholders and Shareholders

A stakeholder is any individual or organisation who has a vested interest in the activities and decision making of a business.

A shareholder is an owner of a company.

So stakeholders include shareholders, but also a wider range of individuals and organisations.

Stakeholders:

•Have an interest in the business – but do not own it
•May work for (employees) or otherwise transact with the business

Shareholders:

•Own the business
•May also work in the business
•Benefit directly from increases in the value of the business

The Stakeholder Concept

In essence, the stakeholder concept argues that the purpose of a business is to create value for stakeholders not just shareholders.

Business needs to consider customers, suppliers, employees, communities as well as shareholders.

In order to succeed and be sustainable over time, business management must keep the interests of customers, suppliers, employees, communities and shareholders aligned and going in the same direction.

The Shareholder Concept

The shareholder concept approach argues that it is the primary responsibility of businesses to act in the interest of its owners - the shareholders. So, decisions should be taken based on the effect of those decisions on shareholders rather than the wider stakeholder groups.