Stakeholder

A stakeholder is any person, group or organization that has an interest in a business or is affected by its decisions and results. Typical stakeholders include shareholders, employees, customers, suppliers, lenders, governments and the communities in which a company operates. The term is used in management, corporate governance, project planning and financial reporting.

Stakeholder is a broader term than shareholder. Shareholders own the company, while stakeholders include everyone with something at stake in how it performs. The distinction lies behind a long debate over whose interests a company should serve, between the idea of shareholder primacy and the idea of stakeholder capitalism. In accounting, the conceptual frameworks name investors, lenders and other creditors as the primary users of financial reports, though many other stakeholders read them.

Picture a neighborhood bakery. The owner has money invested in it. The bakers depend on it for their wages. Regular customers count on fresh bread every morning. The flour mill wants its invoices paid, the bank wants its loan repaid, the town collects taxes and the neighbors care about early-morning delivery trucks.

Each of these people has a reason to care how the bakery is run, even though only the owner owns it. That is what makes them stakeholders. When the bakery makes a big decision, such as opening a second shop or cutting opening hours, it affects all of them, though not always in the same way. A change that pleases the owner, such as raising prices, may annoy customers, and a change that helps staff, such as higher pay, costs the owner money.

Stakeholders are often divided into internal ones, such as owners, managers and employees, and external ones. The main groups are:

• Shareholders. Each shareholder provides equity capital and bears the residual risk of the business.
• Employees. Staff depend on the business for pay, benefits and job security.
• Customers. Buyers rely on the quality, price and continued supply of products and services.
• Suppliers. Each vendor extends credit and depends on being paid.
• Lenders. A creditor is concerned with repayment, interest and loan covenants.
• Governments and communities. Public bodies collect taxes and regulate the business, and local communities feel its effect on jobs and the environment.

Different stakeholders read financial statements for different reasons. Lenders focus on cash flow, liquidity and covenant compliance. Suppliers look at the ability to pay. Employees and unions look at profitability when negotiating pay. Tax authorities look at taxable income, which is measured under separate tax rules. Because general-purpose financial statements cannot meet every need, the FASB and the IASB design them mainly for investors, lenders and other creditors, on the basis that information useful to them will also serve many others.

In a 1970 essay in The New York Times Magazine, the economist Milton Friedman argued that the social responsibility of business is to increase its profits within the rules of the game, a view associated with maximizing shareholder value. In 1984, R. Edward Freeman's book Strategic Management: A Stakeholder Approach set out the case for managing a company with all its stakeholders in mind. In August 2019 the Business Roundtable, an association of large US company chief executives, issued a statement on the purpose of a corporation that committed signers to delivering value to customers, employees, suppliers, communities and shareholders.

In US corporate law, the board of directors owes its duties to the corporation and its shareholders, though many states allow directors to consider other stakeholders, and benefit corporation statutes require it. Economists note that managers serving many masters can be hard to hold to account, one of the agency costs of separating ownership from control.

Interest in stakeholders has driven the growth of sustainability and corporate social responsibility (CSR) reporting. Standards from the Sustainability Accounting Standards Board (SASB) became part of the IFRS Foundation in 2022, and its International Sustainability Standards Board issued its first two standards, IFRS S1 and IFRS S2, in June 2023. Investors who use ESG investing approaches draw on these disclosures. The two reporting worlds differ in focus. Financial statements measure the effect of events on the company itself, while some sustainability frameworks also ask how the company affects people and the environment, an approach sometimes called double materiality. Which approach applies depends on the jurisdiction and the framework a company chooses or is required to follow.

• IFRS Foundation
• U.S. Securities and Exchange Commission