Shareholder vs. stakeholder: What’s the difference?

Summary

The terms shareholder and stakeholder are sometimes used interchangeably, but they’re actually quite different. A shareholder is someone who owns stock in your company, while a stakeholder is someone who is impacted by (or has a “stake” in) a project you’re working on. Learn about the key differences between shareholders and stakeholders, plus why it’s important to consider the needs of all stakeholders when you make decisions.

Warren Buffett bought his first stock in the spring of 1942—when he was just 11 years old. While other kids were playing baseball and trading comic books, Buffett purchased six shares of CITGO stock at $38 a piece and became a company shareholder for the first time.

The soon-to-be investment mogul was a small fish back then. He might have owned shares in CITGO, but at 11 years old he probably wasn’t a key stakeholder for any major project teams. In fact, the company probably didn’t even know he existed.

So how could Buffett be a shareholder but not a stakeholder? These two words sound similar, but they actually represent two very different roles.

What is a shareholder?

A shareholder (also known as a stockholder) is someone who owns shares of a company. Shares represent a small piece of ownership in an organization—so if you open a brokerage account and buy shares of a company, you essentially own a portion of it. And when you own shares, you’re a bona fide shareholder.

As a shareholder, you want to get the most financial return on your investment. That means you’re probably interested in how the company performs on a high level, because stock prices go up when the company does well. And when stock prices go up, you have an opportunity to sell your shares and make a profit.

Depending on the type of shares you own, being a shareholder lets you receive dividends, vote on company policies like mergers and acquisitions, and elect members of the company’s board of directors. Anyone who owns common stock in a company can vote, but the number of shares you own dictates how much power your vote carries. That means big investors hold the most sway over a company’s overall strategic plan .

Types of shareholders

Depending on the type of stock you own, you’re either a common shareholder or a preferred shareholder. You can buy both types of shares through a normal brokerage account, but they give you different benefits.

Common shareholders own common stock. Common stock typically yields higher rates of return in the long-term and gives shareholders part ownership of a company. That means anyone who owns common stock in a company can vote on corporate policies and elect members of your board of directors. However, common shareholders shoulder a bit more risk—if a company is liquidated, they can only claim assets after bondholders, preferred shareholders, and other debtholders have been paid in full.

Preferred shareholders own preferred stock. Preferred stock typically yields lower long-term gains but gives shareholders a guaranteed annual dividend payment. Preferred shareholders usually can’t vote on policies or elect board members, so they don’t have a say in a company’s future. However, they take on a bit less risk—if a company is liquidated, preferred shareholders can claim assets before common stakeholders.

What is a stakeholder?

A stakeholder is someone who can impact or be impacted by a project you’re working on. We usually talk about stakeholders in the context of project management , because you need to understand who’s involved in your project in order to effectively collaborate and get work done. But stakeholders can be more than just team members who work on a project together. For example, shareholders can be stakeholders of your project if the outcome will impact stock prices.

Stakeholders come in many different forms, from independent contributors to company executives. And they don’t have to be within your organization either—for example, an external agency you work with might be a stakeholder on an upcoming event. Similarly, your customers can be stakeholders when their preferences directly influence your product.

Types of stakeholders

There are two main types of stakeholders:

Internal stakeholders are people who have a direct relationship with your company, like your teammates and cross-functional partners. They’re often employed by your company, but not always. For example, shareholders are internal stakeholders because they’re tied to your company through the stocks they own. As such, they’re directly impacted by projects that influence stock prices.

External stakeholders are people who don’t have a direct relationship to your company, like customers, end users, and suppliers. Even though external stakeholders are outside your organization, your project still impacts them in some way. For example, ramping up a manufacturing project would require additional resources from suppliers.

Main differences between shareholders and stakeholders

The terms shareholder and stakeholder are often used interchangeably, but they’re actually very different. Aside from the contrasting definitions we’ve outlined above, shareholders and stakeholders are separated by these key differences:

Different priorities

Shareholders and stakeholders have very different priorities. Shareholders have a financial interest in your company because they want to get the best return on their investment, usually in the form of dividends or stock appreciation. That means their first priority is usually to bolster overall revenue and stock prices. Shareholders of private companies and sole proprietorships can also be responsible for the company’s debts, which gives them an extra financial incentive.

On the other hand, stakeholders are focused on much more than just finances. Internal stakeholders want their projects to succeed so the company can do well overall—plus they want to be treated well and advance in their roles. External stakeholders also want to benefit from your project. That can mean different things, like receiving a great product, experiencing solid customer service, or participating in a respectful and mutually beneficial partnership.

Different timelines

Shareholders and stakeholders also have different timelines for achieving their goals. Shareholders are part owners of the company only as long as they own stock, so they’re usually focused more on short-term goals that influence a company’s share prices. That means your organization’s long-term success isn’t always their top priority, because they can easily sell their stocks and buy shares from another company if they want to.

Alternatively, stakeholders are more interested in your company’s longer term goals . They’re usually less focused on short-term economic performance and fluctuations in stock prices. Instead, stakeholders want your organization to do well overall. For example:

Employees want to keep working at a company that treats them well and gives them opportunities for growth.

Customers want to keep receiving a product they like.

Suppliers want to maintain their relationship with your company and keep profiting from your business long-term.

Who’s more important: Shareholders or stakeholders?

This is a longstanding debate among business analysts—whether companies should focus primarily on making more profits for their shareholders, or focus on benefiting all of their stakeholders (including customers, suppliers, employees, and the community). The debate is divided into two main schools of thought:

Shareholder theory

Shareholder theory was first introduced in the 1960s by economist Milton Friedman . According to Friedman, a company should focus primarily on creating wealth for its shareholders. He argues that decisions about social responsibility (like how to treat employees and customers) rest on the shoulders of shareholders rather than company executives. Since company executives are essentially employees of the shareholders, they’re not obligated to any social responsibilities unless shareholders decide they should be.

Stakeholder theory

Stakeholder theory was first introduced in 1984 by a business professor named Dr. R. Edward Freeman . According to Freeman, companies should focus on creating wealth for all their stakeholders, not just shareholders. He argues that there are interconnected relationships between a business and its customers, suppliers, employees, investors, and the local community. For example:

You want customers to be satisfied with your product and your company so they keep buying from you.

You want employees to be happy and motivated at work so they can bring their full energy and creativity to the table.

You want to help your financiers, partners, and shareholders make a profit so you can keep your investors and get more opportunities for growth.

Why you should prioritize stakeholder theory

Shareholders are important for your company, but as a project lead or program manager you should really prioritize stakeholder theory. That’s because shareholders are usually most concerned with short-term goals that impact stock prices, rather than the long-term health of your company. If you prioritize short-term wins and revenue gains over everything else, you might sacrifice your company culture, business relationships, and customer satisfaction in the process.

On the other hand, stakeholder theory helps you act responsibly towards your employees, customers, and business partners. By prioritizing your immediate project stakeholders (both internal and external), you can create better work environments that promote both employee well-being and customer satisfaction. And when your team feels heard, they’re more motivated to do their best work and help projects succeed. Research shows that only 15% of workers feel completely heard by their organization, but stakeholder theory can help you boost that number and build sustainable and healthy relationships with all of your employees and partners. That means instead of aiming for quick wins, you’re investing in your future.

Stakeholder management, simplified

Most people work with stakeholders on a day-to-day basis, but they rarely encounter company shareholders. Stakeholders help you get work done and achieve your project goals, so it’s important to have a way to manage relationships, coordinate work, and keep stakeholders in the loop.

A project management tool can help simplify the stakeholder management process. For example, UDN Task Manager lets you create and assign tasks with clear due dates, comment directly on tasks, organize work into shareable projects, and send out automated status updates. That way, you can give stakeholders the information they need, when they need it.