In the trading world, the word
stakeholder is a frequently used word. It is important to know what stakeholder
does mean and who the stakeholders are, to start trading in a stock market.
Who is a stakeholder?
A stakeholder is a person or an
entity or a party or group who has interest in certain company or organization.
So, a stakeholder is someone who has stake in a
business’s ownership. By the stakes, he would be affected by the company’s loss
or benefited by the company’s profit. Stakeholders could be the owners
themselves, the employees of the company, the bondholders or the shareholders,
customers dependent on the company supplies or the company issued creditors.
So, stakeholder has wider
interpretation than shareholders who are merely the investors and concerned
with profit and gain. Though, the word stakeholder is mostly used while talking
about the shareholders, it means anyone with a stake in the business. It’d be
easier to understand through an example out of stock market.
You have a family and you are a
stakeholder of your family. If you get your child admitted to a school, you
become a stakeholder of the school as well. You pay tax for the welfare of the
country which makes you a stakeholder of your country. If you are a member of a
social or political
organization, you are their stakeholder. Any organization, institution or group
that has influencing affiliation with you, you become their stakeholder.
There are two types of
stakeholders in business or trading world.
- Internal stakeholders:
Internal stakeholders are those who are directly connected to the business and
get affected immediately by the loss or gain of the business. Owner,
shareholders and the employees are the internal stakeholders.
- External stakeholders: Bondholders,
suppliers, customers, vendors and all others who are affected by the company
operation indirectly from outside are called external stakeholders.
Let’s give an example. Suppose a
company is facing tough time and being unable to pay its debt, it is gradually
going towards bankruptcy. If this happens, the internal stakeholders i.e. the
employees, the owners and the shareholders will directly lose their profit and
investment. On the other hand, the external stakeholders will also be affected
as they might have to wait a bit longer for their product or money.
If the company goes bankrupt
totally, the external stakeholders will also be affected but to a small extent.
Again, if the company can come back from the verge of being bankrupt by
declaring voluntary chapter 11 bankruptcy to
accumulate capital to grow from the ruins, the external stakeholders will be
affected little while the internal ones will have bigger risks.
Shareholders are the primary
As said before, many assume
shareholders are the only stakeholders of a company along with the owners. It’s
a misconception. Shareholders are one of the internal stakeholders. And the
basic difference between other secondary stakeholders and the shareholders is
that, they (shareholders) are responsible for the company’s future as well. The
shareholders have voting power in the company’s directorial board and choosing
members. So, their vote might bring a worthy person in power and make them more
profit. Thus, they are the primary stakeholders a venture.
Bridging the external and internal
Now, as the internal stakeholders
are directly connected to the business and they are the primary benefactor from
the profit, they need to go an extra leg to connect with the external
stakeholders who might not feel interested to the company. One of the smartest
ways to do this is CSR or Corporate Social Responsibility. Public companies
often engage in public works related to society, community, environment,
education etc. to strengthen the bond between them and the external
shareholders i.e. all their customers, sellers, vendors.
Why do we have to know about
Well, stakeholders are the main driving force of a company. Before starting a new project or venture, you have to know perfectly about your stakeholders. Because, a new project or a business needs a lot of engagement with the stakeholders to attract them. If you don’t know who your stakeholders are, you can’t engage with them properly. And if you keep engaging at random, this won’t help a bit.