Organizations are often involved with a variety of different stakeholders, but are all of them stockholders? In most cases, they are not. A stockholder (or shareholder) is someone with partial ownership of the organization. They are oftentimes focused on the return of investment. A stakeholder, on the other hand, is somebody who has an interest in the activities undertaken but does not have partial ownership of the organization.
There is a relationship between stakeholders and shareholders. In recent history, it seems that the best interests of shareholders and that of employees or stakeholders are often opposed. To the contrary, those interests are not mutually exclusive and do share significant common interests.
Stakeholders come from a variety of different backgrounds, shapes, and forms. For example, as the world faces an ever-increasing growth in global consumer demand, the amount of greenhouse gas and other harmful byproducts end up on the planet. When something on a global scale like that happens, every individual becomes a stakeholder of companies/ governments that emit a lot of pollutants.
Whether you are the CEO of a multinational, a government official or a citizen, climate change is perceived to be something that everyone has to be engaged in to succeed. As different stakeholders can be directly or indirectly impacted by the decisions made to industries and the broader environment, the difficulty arises having to balance the differing interests while tackling what some perceive to be one of the biggest issues of our time. The multitude of individuals independently acting on their self-interest as opposed to the broader good can lead to the greater communal losses in the long-run – a phenomenon more widely known as tragedy of the commons.
Looking at a less abstract example, when a corporation decides to build an industrial plant in a certain area, the stockholders for the organization will assess the opportunities that can provide the most bang for their buck. Yet, stakeholders such as governmental agencies, the people and even employees may still have a direct or indirect say on the viability of the project and continuous operations as they consider their socioeconomic factors and more. Other stockholders further downstream may not have a say, yet they can be impacted just as much if not more by the potential pollution and other factors. Both stockholders and stakeholders have to balance differing interests such as the environment, socioeconomic components and more.
It is common to perceive a stockholder as an investor in the stock market, Forex, bonds and even real estate. The simple fact, however, is that, for most people, one’s job or career is the most significant investment anyone will ever make. One of the largest commitments of time, energy and mind any person continuously makes is to their job or career.
Pick up any business publication and you will see the latest figures on mergers & acquisition, lay-offs, downsizing, restructuring, earnings reports and so forth, all of which is intended for the consumption of and the benefit for the shareholders.
Are the best interests of stakeholders really opposed to the best interests of shareholders? Any company’s success or failure is ultimately determined by the incentive mechanisms created and reinforced by its investors, management, people, and the environment. Good management practices make for good and motivated employees. Well-motivated, driven stakeholders and the right environment can result in a competitive advantage and greater performance for the shareholders.
Any employer expects a return on investment in their people for the benefit of the stockholders; likewise, it is in an employee’s best interest to evaluate an employer’s management practices so that they are not stifled in their career. Bad management not only hurts stakeholder but, in the long run, hurts the stockholders as well.
More than any other individual, it is the Chief Executive Officer’s vision, skill, and drive that determines the road that the organization takes to the eventual success or failure of any organization.
For example, is the vision of the organization correlated to market realities? Does a company or organization empower its people? Or is its management team a victim of conventional thinking? Are innovation, creativity, and empowerment balanced with economic reality?
The fundamental tenant of business is taking risk commensurate with potential reward but there is no reward without taking a risk. Whether it is a stock, a project or a company, even the best stockholders are bound to have failures, it is a matter of making calculated bets, learning from other’s mistakes and most importantly, failing fast.