A stakeholder is any individual or entity that has a stake in the success of a business or organization. Primary stakeholders have a direct interest in the organization, as opposed to an indirect interest. These stakeholders typically either maintain their livelihoods directly through the organization or make use of the organization in some direct manner.
It is easy to confuse the terms "stakeholder" and "shareholder." Shareholders consist of all individuals and entities that own a share of the company. While shareholders are stakeholders in the organization, not all stakeholders are shareholders. Additionally, shareholders are primary stakeholders, but they are not the only primary stakeholders in the organization. Other primary stakeholders include, but are not limited to, customers and employees. One of the challenges of managing an organization is to balance the needs of both primary and secondary stakeholders.
The understanding of primary and secondary stakeholders, as well as their interests and influences is essential to the effective management of the organization. While primary stakeholders have a direct interest in the organization, secondary stakeholders have an indirect interest. For example, secondary stakeholders might work for a separate institution charged with providing oversight for the organization, or they might derive their livelihoods from an institution, such as local government agencies, which rely on the success of the organization to keep their own agencies afloat.
These two groups often have common interests, but also sometimes have conflicting interests. It is vital for organizational leaders to understand the impact of the needs and influences of both groups.
The interests of primary stakeholders are typically taken into consideration before those of secondary stakeholders. Primary stakeholders, including shareholders and investors, have a vested interest in ensuring the organization succeeds financially. Employees rely on the organization to provide job security, and suppliers rely on the organization to purchase goods and services. These interests may conflict at times. For example, an employee wage increase may sometimes be possible only if dividends are capped.
Primary stakeholders have the ability to directly influence the decision making process in the organization. This influence may take many forms depending on the individual stakeholder. For example, customers can use their buying power to influence organizational leaders to make ethical decisions. Employees and investors may also put pressure on leaders, influencing the decision making process in a different way.