What a stakeholder is
Definition
Stakeholder: any individual or group with an interest in a business, or who is affected by what the business does.
- Having an interest means a business decision changes something that group cares about, such as its wages, the price it pays, the orders it receives or the traffic on its street.
- You do not have to own any part of a business to be a stakeholder in it, so a shopper buying a sausage roll and a resident living above the shop both count.
- Every business has stakeholders, whether it is a single market stall or Tesco plc, and one person can be a stakeholder in hundreds of businesses at once.
Example
- One Greggs branch has the shareholders who own the company, the staff behind the counter, the customers queueing at eight in the morning, the bakery that supplies the pastry and the residents in the flats above.
- Each group is tied to the branch in a different way, through profit, pay, price, orders or noise.
The five main stakeholder groups
- Owners and shareholders: these are the people who put money into the business and own it, so a sole trader owns her whole café while the shareholders of Tesco plc each own a small slice of the company.
- They carry the risk, because they lose the money they invested if the business fails.
- Employees: these are the people who work for the business in return for pay, from the riders delivering for Deliveroo to the engineers building diggers at JCB.
- Customers: these are the people or organisations who buy the goods and services, so Currys sells to families buying a washing machine and also to firms buying laptops for staff.
- Suppliers: these are the businesses that sell the firm the materials, stock or services it needs, such as the flour mills that supply Warburtons.
- The local community: these are the residents, schools and other businesses near the site, such as the people of Sunderland living around the Nissan plant, and they are affected by jobs, traffic and noise even if they never buy anything from the firm.
Internal and external stakeholders
Definition
Internal stakeholder: a stakeholder inside the business, meaning its owners and its employees.
External stakeholder: a stakeholder outside the business, such as customers, suppliers and the local community.
- The test is one question: does this group own the business or work in it?
- Owners and employees answer yes, so they are internal, and customers, suppliers and the local community answer no, so they are external.
- The government is often added to the external list, because HMRC takes tax from the profits and the local council decides the planning applications.
- One person can hold two roles at once, such as a Greggs shop assistant who also owns shares in the company, so classify each role separately.
Common Mistake
- Shareholder and stakeholder are not the same word: every shareholder is a stakeholder, but a customer or a supplier is a stakeholder without owning a single share.
- Dealing with a business every day does not make you internal, so a supplier who delivers to Tesco each morning is still an external stakeholder.
Spotting stakeholders in a case
- Work through the case asking who owns the business, who works in it, who buys from it, who sells to it and who lives near it, and name the exact group the text gives you.
- The same group carries different weight in different businesses, so the local community is a major stakeholder for a quarry or an airport and a minor one for an online-only retailer working from a small unit.
Note
- This article only names the groups; what each one actually wants from the business is covered in the article on stakeholder objectives.
- How business activity affects those groups, and how they push back on the business, is covered in the article on the impact and influence of stakeholders.
Exam technique
- Identify one stakeholder questions want a named group from the case, so write "the residents living near the depot" rather than "stakeholders".
- State whether X is an internal or external stakeholder needs the label and the reason, and the reason is always whether the group owns the business or works in it.
- Pull the group out of the case rather than inventing one, so if the text mentions a haulage firm delivering stock, call that firm the supplier.
Self review
- What is a stakeholder?
- Name the five main stakeholder groups of a business.
- Which two groups are internal, and what makes them internal?
- Why is the local community a stakeholder in a factory even if nobody there buys from it?
- Why is every shareholder a stakeholder, but not every stakeholder a shareholder?
