Four Types of Stakeholder Power

In the "stakeholder" concept of business ethics, all individuals and groups in society who are affected by a business and its practices hold a stake in that business. While shareholders, company officers and customers are the most directly affected and the most directly powerful, other stakeholders can influence a business's practices as well in a variety of ways. An unlimited number of individuals and aggregates may wield stakeholder power in four distinct categories.

Company shareholders have the most direct power over companies through voting. Prior to or during annual meetings, shareholders may cast votes proportionate to the amount of stock they hold to influence or direct a business's future actions. This power is unique to shareholders unless contractually awarded to other parties; for example, a few companies have given labor unions a voting voice.

Anyone who can influence a business's profits or losses holds economic power over that business. Customers and shareholders commonly hold great economic power over a business, but the banks that lend to it, creditors who extend credit and even governments (through tax levies) also wield economic power. Suppliers and retailers also hold economic power in that they may refuse to supply to or sell products from a company. Workers, particularly workers organized into unions, have great economic power through work slowdowns or strikes.

Governments hold direct political power over companies, most often expressed through how those companies are taxed, regulated and permitted to exist. In democratically organized countries, voters and activist organizations may use voting and political pressure to influence political power. In countries with other types of governance, political power may be wielded for or against companies in different ways, as when a country decides to nationalize a privately held business.

Stakeholders directly and indirectly impacted by a company may bring legal power to bear against a corporation. Employees who feel they have been treated unfairly may bring lawsuits, either alone or in class actions. Customers, environmentalists, labor unions and even governments are also able to file lawsuits against companies. Because lawsuits, even those that are won, can result in crippling legal fees, this is a power not to be taken lightly.

Stakeholders may also wield power to influence business practices in a few other ways. Technology, cultural norms, the environment and direct persuasion of groups have also been cited as areas of stakeholder power. In most cases, however, these secondary types of stakeholder power can easily be classified under the other four. For example, one type of environmental power might be building a dam upstream from a fishery; however, this particular action can be defined as political or legal stakeholder power as well. Many of the four main types of power may also be seen as overlapping.