Difference between Stakeholders and Shareholders | Financial Accounting

This article will help you to learn about the differences between stakeholders and shareholders.

Shareholders are definitely the important stakeholders of a company; nevertheless they are not the only group who are interested in the company’s activities, its financial performance, financial position and cash flows. Of course, the shareholders in addition would be interested to know how the shareholders fund has changed – there may be growth or decline.

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On the other hand, stakeholders are persons, groups, or organizations that have direct or indirect stake in an organization because they can affect or be affected by the organization’s actions, objectives, and policies. Key stakeholders in a business organization include creditors, customers, directors, employees, Government (and its agencies), owners (shareholders), suppliers, unions, and the community from which the business draws its resources.

Shareholders hold shares in the company, i.e. they own part of it, whereas stakeholders have an interest in the company but do not own it (unless they are shareholders). It is a debate whether a company should be run for shareholders or stakeholders.

Given below in the next paragraph is an excerpt of a recently published articles in Solan Management Review – The Shareholders v. Stake­holders Debate, by H. Jeff Smith:

“Scandals at Enron, Global Crossing, ImClone, Tyco International and WorldCom, concerns about the independence of accountants who are charged with auditing financial statements, and questions about the incen­tive schemes and investor recommendations at Credit Suisse, First Boston and Merrill Lynch have all provided rich fodder for those who question the premise of shareholder supremacy. Many observers have claimed that these scandals serve as evidence of the failure of the shareholder theory — that managers primarily have a duly to maximize shareholder returns — and the victory of stakeholder theory, which says that a manager’s duty is to balance the shareholders’ financial interests against the interests of other stakeholders such as employees, customers and the local community, even if it reduces shareholder returns. Before attempting to declare a victor, however, it is helpful to consider what the two theories actually say and what they do not say. Both the shareholder and stakeholder theories are normative theories of corporate social responsibility, dictating what a corporation’s role ought to be. By extension, they can also be seen as normative theories of business ethics, since executives and managers of a corporation should make decisions according to the right theory. Unfortu­nately, the two theories are very much at odds regarding what is right.”

For example, Reliance Industries have 44,000 employees on roll and has over 10,000 customers ranging from very large units to very small plastic converting companies that sources only a few bags of materials at a time. All these different customer segments are serviced through a large network of agents and dealers spread across the country. It is obvious that these large body of interested individuals and organisations constituent of stakeholders may be equal (if not more) passionate group than the shareholders.

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