A Comprehensive Guide To The Meaning Of A Stakeholder

A Comprehensive Guide To The Meaning Of A Stakeholder

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What Is A Stakeholder?

A stakeholder denotes any person, group or entity that has got an interest, or stake, in the process of decision-making and a business, organization or project. Stakeholders are twofold: they can be officials who are stakeholders in organizations or they can be individuals who have no official roles in the organizations they support. Stakeholders may participate in the decision-making processes or may provide support for an organization’s activities or projects. They have a great role in building healthy business and the completion of projects.

The ISO 26000 is a set of international standards issued by the International Organization for Standardization (ISO) which provide the balance between the economic, social, and environmental responsibilities of corporations. It includes the following criteria for identifying a stakeholder : 

  • The company has legal obligations towards its stakeholders.
  • They are either positively or negatively affected by the organization’s decisions.
  • They’re probably going to share their concern and get involved in what the organization does.

In accordance with these criteria, employees, customers, shareholders, suppliers, boards of directors, community members or organizations, and government agencies make up the list of the stakeholders. Stakeholder capitalism, in its simplest form, is a system that stems from the organization’s aim of meeting the interests of the stakeholders.

The term stakeholder derives from a phrase related to horse races. A race with generally high prize money is known as a stakes race where the funds are collected from entry fees from horse owners via a race entry. The admission fee is a stake, which means they appreciate the risk. The person or person(s) that are to handle the entry fee until the prize money is given is called the stakeholder. Conventionally, this stakeholder doesn’t own a financial share and doesn’t have an interest in the outcome of a sports competition.

Types Of Stakeholders

Stakeholders may be from any area of an organization or project in different ways, which makes their connections diverse. Here are the most common types of stakeholders : 

  • Customers are the backbone of organizations as they want to be rewarded with good quality products.
  • Employees may be stakeholders of a project and participate in the projects that involve their roles at work.
  • Owners provide the organization’s equity and capital which are the business goals they are obliged to pursue.
  • Investors are shareholders who invest in businesses by providing financial rewards and mostly get regular financial reports from the firms they invest in and also voting power in the big decisions made by the company.
  • Creditors include bank loans and bondholders who lend money with conditions of repayment with interest.
  • Suppliers are the originators of all materials and products that are used by the organizations and therefore they want the business to persistently grow and the projects to be successful. 
  • Communities have concerns about businesses being in good health, and safety and can add to the local economy. Businesses are providers of jobs and supply the local communities with the business. Nowadays, environmental protection, sustainability as well as governance (ESG) is one of the main factors for society and investors whether they are consumers or professionals.
  • The governments will tax companies and their employees on the earnings of the companies’ operations and engage their employees.

Internal VS External Stakeholders

Stakeholders can be further divided into internal stakeholders and external stakeholders. 

Internal Stakeholders

Internal stakeholders may include the employees, owners, or investors of the company due to their immediate level of interest. Workforce, project team leaders, and governing bodies at different levels including employees, board of directors, project donors, and investors are some common examples of internal stakeholders in the organization. These people are commonly known as primary stakeholders or key shareholders because they have a very important interest in the company’s or project’s success.

External Stakeholders

External stakeholders are not in the organization and yet they are those who are not directly affected by the company’s decisions but they are indirectly becoming the potential sufferers from the possible consequences of a poor plan or a mistake. External stakeholders include customers, vendors, government agencies, creditors, unions, and community groups. However, these types of stakeholders cannot be a part of the project as they do not own any equity in the business. Rather, they can only be secondary stakeholders as their concern is the representational stake that they have in the company or the project.

Examples Of Stakeholders

Stakeholders exist across all industries. For instance, in the field of healthcare, we look at stakeholders as those who have a vested or unreserved interest in the healthcare services provided and those who make decisions that can affect the services. They consist of all kinds of healthcare providers including doctors, nurses, and allied workers, healthcare facilities such as hospitals, clinics, and other service providers, healthcare IT, medical devices, and other suppliers, the government has a policy role, social and community-based organizations, nonprofit associations, and patients. 

Another type of example is one of the many roles a stakeholder may play in a legal process. In this case, the stakeholder refers to the individual or the group that for some reason is only allowed to dispose of money or property while the court determines who is the main owner.

In a project management context, the stakeholders are the persons who are directly influenced by the outcome of the project whether it is successful or not. The following are the list of the stakeholders : 

  • clients, whose happiness with a product or project under consideration is what the implementation of a plan should bring about.
  • project managers who lead a project and manage every aspect of it.
  • project sponsor those who finance the projects.
  • the project team members, the people who are doing the project job by conducting specific tasks to achieve intended results.

What Is The Difference Between Stakeholders And Shareholders?

Shareholders are the stakeholders who invest their money to get a stake in an organization. Stakeholders focus on the company’s overall performance while shareholders pay additional attention to the company stock prices or an alternative to return on investment.

An investor’s money keeps an organization going by providing it with resources to operate and function. Depending on the size of the investment, shareholders may sometimes have more power than stakeholders in the organizational decisions and implementation of projects. Funding may empower shareholders to monitor the financial performance of an organization regularly and being involved in business decisions can be considered the privilege which shareholders have.

How To Manage Stakeholders

Businesses as interconnected systems: Freemans’s concept(Freeman, 1984), which is based on interdependence among all the elements, is that firms are like systems. Every piece is dependent on others, and everyone’s contributions lead to effective operations only when the system is connected.

Creating value for all: Freeman and Reed stated in a 1983 article that communities, employees, customers, and other key individuals, in addition to owners (stockholders) play a significant role in the generation of value for firms. Any stakeholder may be defined as everyone affected by the business, despite any direct investment. Generally, these stakeholders (employees, customers, neighbors, etc.) are the ones who provide the business with the resources to function. Stakeholders can be the part of a successful business for entrepreneurs. They must know the actual stakeholders and the way where both achieves you the purpose.

Modern Stakeholder Management: Nowadays, running the stakeholders’ actions in an effective manner comprises of 3 main steps: analyzing who the stakeholders are, prioritizing their importance, and engage an active part in communication.

Stakeholder Analysis

This analysis commences with getting aware of the project’s major stakeholders along with their ranking. After the stakeholders are identified, stakeholder analysis measures and evaluates the degrees of influence and needs of the stakeholders, then ranks which of them are most probably going to influence the company or be affected by it. This information is used as a medium for balancing and making better business decisions.

Stakeholders’ analysis is the key part of stakeholder management, which is the process based on stakeholders’ motives and concerns to achieve positive results. The internal and external stakeholders should be considered when conducting stakeholder analysis.

Prioritize The Major Stakeholders

The project is usually implemented while interacting with several important key stakeholders with a wide range of values and preferences. Once the entity or the project is identified and ranks these stakeholders, it can design a process that will indicate at what stage they can communicate with different stakeholders. In the example mentioned, investors are number one to assist in the setting up of the project and are financially committed. They are most likely to get status reports at regular intervals. In the meantime, the project management framework directs employees to communicate with their team members regularly at various stages during the progress of the project.

Stakeholder Engagement

A measure of good stakeholder management is based on strong and constructive stakeholder communication. This means that project management is effective if it deliberately includes the stakeholders in the different stages of the planning, execution, and completion of a project. A crucial component of this engagement is grasping and fulfilling the expectations of the stakeholders. Organizations need to map stakeholder interests, communicate through planned strategy, whether it is through written or verbal communication, and provide them with status reports. See how Hong Kong Housing Authority practices stakeholder engagement.

How FastLane Group Can Help?

FastLane Group bridges communication gaps between the management and the investors by its Audit Service. Through the process of complying, identifying issues, improving communication, and creating a well-informed decision making platform, Fastlane promotes trust and accountability. Transparency in reporting and proactive engagement allows Fastlane to help organizations meet the needs of their stakeholders. It is with these relationships that organizations will enjoy continued success. Contact us today to elevate your stakeholder engagement strategies!

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