Shareholder vs Stakeholder: What’s the Difference?

Shareholder vs. Stakeholder

If you don’t have time to dig into the nuances of what stakeholders and shareholders are, I totally get it. You (probably a stakeholder and/or shareholder at one or more organizations, yourself) have a busy schedule.

If that’s the case, let me give you a quick rundown on the subject — supported by this super cool graphic I made. Here we go.

Stakeholder versus shareholder — what’s the difference? Here are the key points.

• A shareholder of a company is a partial owner of that business — someone who likely purchased stock to “hold a share” of that organization.
• A company stakeholder is any individual or group who contributes to or is impacted by the success of that business — someone who “has a stake” in how the business performs, including shareholders.

Now, check out that graphic I just mentioned:

Pretty sweet, huh?

And that‘s that — there’s my “as high-level as possible” breakdown of the subject. Hopefully, that will give you a sense of how shareholders and stakeholders differ. If you‘re still unclear and/or have some time to dig in more, good news! I’ve written an entire article on the subject below this.

Ideally, it’ll offer you some helpful perspective on the distinctions between these two groups — so take a look!

I would go so far as to say most of you reading this are a shareholder of at least one business. If you‘re not clear on whether that’s the case, there’s one question that can clear things up pretty quickly: “Have you ever bought stock?”

If your answer is anywhere between, “No s***, Sherlock,” and “Oh yeah, that’s right. I did do that that that one time. Thank you for reminding me, Jay,” congratulations! You’re a shareholder.

But regardless of how you answered that question — whether you were annoyed with me for asking or I somehow jogged your memory — you might be less clear on what kind of shareholder you are and what the various privileges and responsibilities come with the type of stock you have.

Let’s take a closer look at the role of a shareholder and what it can look like.

The Role of a Shareholder

The term “the role of a shareholder” is tough to pin down — mostly because there‘s more than one type of shareholder. The two most common of which are “common” and “preferred.” Here’s a picture of both kinds, their unique characteristics, and what they do.

Types of Shareholders

Common Shareholders

In most cases, the term “shareholders” refers to common shareholders. Common shareholders are (typically ordinary) individuals who buy common stock — usually available on a stock exchange. For their purchase, they’re awarded certain benefits, entrusted with key responsibilities, and assume some risks. For instance:

• They receive dividends — regularly paid distributions of company profits — for their investments.
• They often get to vote on decisions related to certain personnel and broader company direction.
• They’re last to receive payments from the proceeds if the company declares bankruptcy.

Example

When I was nine years old, I loved professional wrestling. It was my favorite thing in the world — even now, I can still rattle off enough trivia about early-to-mid-2000s WWE storylines to make people both marginally entertained and visibly uncomfortable.

Anyway, for my 10th birthday, my grandfather bought me five shares of WWE stock to offer me some lessons about financial responsibility (while indulging my interest in what is essentially a violent soap opera where everyone wears costumes) — making me a common shareholder of the most electrifying brand in sports entertainment.

For the past 20 years, I‘ve received around 60 cents in annual dividends from the WWE. And in May 2023, I got to participate in the company’s annual meeting — where I got to vote on key action items like confirming the WWE‘s board of directors and approving the company’s executive compensation.

And if you think I’m kidding about all of this, check this out.

That‘s an actual screenshot from my email. I really am a common shareholder of the foremost “performance art that has significant crossover appeal with Monster energy drink” brand on Earth. It’s okay to be impressed.

But as I said, “common” isn‘t the only kind of shareholder. Let’s take a closer look at the other side of the shareholder token — preferred shareholders.

Preferred Shareholders

Preferred shareholders are both prioritized and limited by the companies they have stock in. Preferred stocks tend to be more lucrative than common stock, but they offer preferred shareholders less influence over a business’s corporate governance. In short:

• Preferred shareholders have higher claims on distributions and, in turn, receive higher dividends.
• They have a greater claim on a company’s assets in the event of a liquidation.
• They have no voting rights.

Now that you have a sense of what shareholders are and the types of stock they own, we’re going to dive into the other half of this topic — stakeholders.

As I mentioned exactly one sentence ago, shareholders are technically also stakeholders in the business. They have a bearing on how a company performs and a definitive interest in seeing to it that it thrives.

Let’s take a closer look at the roles various stakeholders can play in a business context.

The Role of a Stakeholder

I said it earlier, but I‘ll reiterate: “Stakeholder” is a pretty broad term, so the “role” of a stakeholder varies pretty considerably from entity to entity. For instance, a customer’s role in a company‘s success isn’t going to be the same as an employee’s.

Ultimately, everyone who can be considered a stakeholder at a business is united by the fact that they both influence and are impacted by how a business performs — so while their roles may vary, they all have a personal stake in seeing to it that the company they’re working with or for does well.

Here are some of the various kinds of stakeholders a company can have.

Types of Stakeholders

Internal Stakeholders

Internal stakeholders are stakeholders that work within a business. They can include:

• Owners
• Boards of directors
• Management
• Shareholders
• Employees

External Stakeholders

External stakeholders are those who are interested or directly impacted by the success of a business — without immediate influence over or direct internal contributions to that business’s projects and initiatives. They can include:

• Customers
• Suppliers
• Communities
• Creditors
• Unions
• Government agencies

Primary Stakeholders

Primary stakeholders are those who most directly impact business outcomes and, in turn, are often most closely impacted by how that business performs. They can include:

• Customers
• Shareholders
• Employees
• Suppliers

Secondary Stakeholders

Secondary stakeholders are entities that have an interest in how a business performs and can impact or influence its operations more indirectly. They can include:

• Government agencies
• Community groups
• Partners
• Unions

Which is more important: stakeholders or shareholders?

So who‘s more important: stakeholders or shareholders? Well, that’s honestly a pretty hotly contested topic. There are two main camps, each subscribing to a different “theory” on the issue — stakeholder theory and shareholder theory. Both theories are staples in the field of business ethics, and they primarily revolve around where a company’s social and financial responsibilities lie.

Let’s take a closer look at each.

What is shareholder theory?

Shareholder theory, also known as the Friedman doctrine, rests on the notion that businesses’ first (and only) responsibility is to maximize shareholder profits. Milton Friedman, the economist behind this theory, asserted that a given company has no responsibility to the public or society at large — just its shareholders.

In turn, businesses should do everything in their power to advance the interests of the people who own it, without regard for broader social responsibility. The theory dictates that actions like making charitable donations and pursuing socially conscious endeavors are up to individuals — and in a corporate context, taking those kinds of strides essentially amounts to executives spending their employers’ money without their consent.

What is stakeholder theory?

Stakeholder theory, as you might imagine, is a doctrine that emphasizes that organizations should prioritize the interests of all their stakeholders — both internal and external — as opposed to just the profits of shareholders.

It argues that businesses have a responsibility to create value for everyone who relies on them — including their customers, employees, suppliers, impacted communities, and shareholders. The theory postulates that organizations should work for all of those entities and, in doing so, will achieve lasting, sustainable success.

Stakeholder Theory vs. Shareholder Theory

I‘m going to preface this section by saying I’m not an economist and I don‘t have a background in business ethics. I also want to stress that this is very much my perspective on the issue — I’m not speaking on HubSpot‘s behalf. But based on my (admittedly limited) understanding of these two theories and the research I’ve seen, I would say I err on the side of stakeholder theory being the way to go.

Shareholder wealth maximization is the cornerstone of shareholder theory. The theory asserts that generating as much money as possible for shareholders is both beneficial for business and should be any company leadership’s primary responsibility.

And in theory, that does kind of make sense. Hypothetically, shareholder theory offers benefits like minimizing ambiguity in goal-setting by aligning the entire company with the financial interests of a single group and improving manager accountability by not letting company leaders pursue personal agendas or self-interest with company resources.

But there‘s almost always a gap between theory and practice in every facet of life and business, and in this case, shareholder theory’s “gap” has had some disastrous repercussions — specifically when it came to the role financial institutions played in the context of the 2007-2008 financial crisis.