Company Formation

What or who is a stakeholder?

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Every company has people who have a stake in it, either for profit or its general health. Those are stakeholders. Keep reading this article to learn more about stakeholders!

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Answer Adeosun
Oct 5, 22 · 8 min read
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To put it more concisely, a stakeholder is a person who has an interest or a stake in a company or business. Therefore, stakeholders range from owners, managers, and employees to customers. Even the government can sometimes be stakeholders.

In another point of view, stakeholders are those who affect or are affected, positively or negatively, by a company or business’s decisions and transactions. Whatever role a stakeholder is playing in your business, whether internal or external, their interests can sometimes conflict with the company’s policies.

How many kinds of stakeholders exist?

Stakeholders can either be internal or external. Internal stakeholders are those who are directly involved in the day-to-day activities of the running of the business or company. Examples are owners or shareholders, managers, directors, and employees. Their interests differ.

  • Owners or shareholders – these are directly involved as the survival and profitability of the company rest on their decisions.
  • Managers and directors – these are involved in the day-to-day activities, have stakes in the profitability of the company as well as their salaries.
  • Employees or workers – these people have an interest in the salary and survival of the company to ensure their job security.

The external stakeholders are not involved in the day-to-day activities of the company but still affect the business somehow. Examples are customers, suppliers, financial organisations, communities, external shareholders (in public limited companies), governments, and sometimes some NGOs. Just like the internal stakeholders, their interests also differ.

  • Customers – these are directly affected by the goods and services they purchase from the company. Their interests may also play a major role in whether the company will survive or not. For example, if the goods being produced by the company are of low quality and less desirable to their customers, the profitability of the company is thus at stake. Hence, companies often use means like customer services and customer satisfaction questionnaires to obtain useful information from their customers on which they base future decisions.
  • Suppliers – these are usually other companies or sole traders who supply the company with raw materials and utilities. Their interest in the company is to sell those and make sure they get paid on time. Suppliers are additionally interested in the company’s ultimate survival because then they don’t have to lose a source of income or look for new customers.
  • Financial organisations – the banks are loaners. They have an interest in giving loans to profit-making companies so that they can also reap good interests. Therefore, their stake in the company is monetary in nature and hence tends to be interested in what the company is doing to make more money in terms of investments, expansions, sales, and acquisitions.
  • Communities – the community in which the company is operational also has major stakes in the company most especially because they sometimes constitute the bulk of the company’s customer base anyway. In addition, communities either benefit or are harmed by the products and by-products of a company. For example, the community in which a mining company is sited will feel the effect on the land and in waterways. Noise from heavy machinery and or air and water pollution from liquid waste and effluents also have a negative effect on the community. Hence, the company almost always makes decisions that will help alleviate these effects by organising community and social programmes. Otherwise, they stand to face lawsuits and lose a lot of money.
  • External shareholders – these are only important if the company is publicly limited. These external shareholders, like the internal shareholders, are concerned about their profit or loss in the number of dividends they get paid.
  • Government, pressure groups, and NGOs – sometimes, the government may have an interest in a company if its product or by-product affects the economy of the nation. Such interest may be in the form of tax, VAT, or even legal action if the company is flaunting any law of the land. NGOs and pressure also sometimes have a stake in a company, especially the human rights organisations who may promote the company or take legal action against them.

Stakeholders can also be direct or indirect. Direct stakeholders are involved in the stakeholders and they are mostly the internal stakeholders as well as investors while the indirect stakeholders are not directly involved in the day-to-day of the company but have a stake in it anyway (they are mostly the external stakeholders).

Why are stakeholders important?

Whether external or internal, stakeholders are important to the health of the company. 

The internal stakeholders (owners, managers, and employees) are important for the smooth running of the company. Owners see to its establishment; managers manage the day-to-day activities while the employees work to produce the goods and services required by the customers.

The external stakeholders, on the other hand, may not have a monetary interest in terms of dividends or salary in the company (except the external shareholders of course) but their pleasure or displeasure may determine whether the company prospers or not. Some of the ways they do this have been highlighted in the subheading above.

What is stakeholder analysis?

Stakeholder analysis helps in stakeholder management. Stakeholder analysis is therefore the art of identifying whom the stakeholders of your company are and identifying their roles and interests. Understanding this perfectly will help in managing the different stakeholders effectively such that their interests mostly align for the benefit and general health of the company.

A tool that is usually used in stakeholder analysis is the stakeholder matrix. This matrix helps in identifying the stakeholders who will be directly and indirectly involved in the business, their roles, and the levels at which they affect the company.

What are the important techniques involved in stakeholder analysis?

  1. Gather information – these can be done through questionnaires and reports from the business’ customer service personnel.
  2. Identify – you must identify and make a list of every stakeholder no matter how insignificant they seem.
  3. Organise and prioritise according to importance – you may need to construct a stakeholder matrix for this. Through this technique, you rank the level of importance of each stakeholder, the power they hold, and how their involvement or not impacts the business.
  4. Understand your stakeholders – you must understand the interests of each stakeholder to be able to proffer solutions to their grievances and develop ways to keep them happy.
  5. Develop actionable plans – based on your understanding of your stakeholders’ wants and dislikes, you can now develop an actionable plan that addresses the interests of all parties.
  6. Communicate effectively with stakeholders – this can be done through newsletters, advertisements, internal memos, etc., and ensure to obtain feedback from them too.
  7. Monitor and review – you must always monitor your company’s actions to know if they are still valid and serving the interests of all parties involved and review those when necessary.

What are the benefits of creating a stakeholder analysis?

Stakeholder analysis benefits the company in the following ways –

  • It helps to identify the people with stakes in the success of the company,
  • Provides information and a better understanding of the specific interests of each stakeholder,
  • Helps to define means by which the company management can better manage the interests of their stakeholders, 
  • Enables the company to anticipate potential threats and risks to the company’s health, and
  • Gives the company a humane outlook if done and managed correctly.

In conclusion, no matter how insignificant a stakeholder might seem, understanding their role and interest in the company will go a long way to manage them for the overall benefit of the company in the long run.

How to identify a stakeholder

A stakeholder can be identified by their
HowTo step image

1. Interest

This involves how they benefit the company or benefit from the company. For example, the customers benefit the company because without them the company cannot sell its goods and services. These customers also benefit from the company because the goods and services they provide satisfy the specific needs of the customers.

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