In the business world, a stakeholder is usually an investor in your company whose actions determine the outcome of your business decisions. Stakeholders don't have to be shareholders. They can also be your employees who share in the success of your company and the incentive for the success of your products. They can be business partners who rely on your success to keep the supply chain going.
Each company has a different approach to stakeholders. The roles of those involved differ from one company to another depending on the rules and responsibilities that were established when your company was started or as your company has evolved over the years. However, the most common definition of a stakeholder is a large investor who has the power to hold a viable "stake" in your company.
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The most common gathering of stakeholders in a publicly traded company is the board of directors, which is composed of senior executives and the occasional outsider who hold a large amount of equity in the company. Each of these stakeholders has the power to disrupt decisions or introduce new ideas into the company. The Board of Directors has the power to appoint and, if necessary, remove all levels of senior management, including the CEO. Board members determine the future of the company and are involved in all important business decisions.
While the board of directors is a more “hands off” method of managing a company, some stakeholders prefer the “hands on” approach by taking on management positions directly. Stakeholders can take over certain departments - like human resources or research and development - to manage the business and ensure success. In private and listed companies, large investors often participate directly in business decisions at management level.
Stakeholders are considered to be large investors who increase or decrease their stake in your company according to their financial performance. Ideally, they act as guardian angels for the everyday investor, scouring financial reports and urging management to change tactics if necessary. Certain interest groups known as activist investors will make unpredictable investments and sales to move the stock price and draw media attention to a specific topic. Carl Icahn is known for this high pressure tactic with which companies are shaped more to their taste.
Large interest groups tend to be high profile investors and want to stay away from companies that trample human rights and environmental laws. They oversee your company's outsourcing activities and globalization initiatives and can vote against your business decisions if they harm the company's long-term goals.
Of course, this is just a broad description of stakeholder responsibilities; ideally, you have stakeholders dealing with these four issues, but in most cases short-term gains take precedence over long-term sustainability. While stakeholders can own your company, it is easier to control your investors when your company is privately owned than publicly traded.
Often times, the huge inflow of cash from a successful IPO turns out to be a deal with the devil when your company is suddenly taken over by a board of directors that is ousting you. However, on the flip side, stakeholders can keep your company on the ground and focus on its most profitable products and support your company's bottom line growth.