Introduction:

A stakeholder is a party that has an interest in a company and can either affect or be affected by the business. The primary stakeholders in a typical corporation are its investors, employees, customers, and suppliers. However, with the increasing attention on corporate social responsibility, the concept has been extended to include communities, governments, and trade associations.

Examples of Internal an External Stakeholders:

Internal Stakeholders:

Investors are internal stakeholders who are significantly impacted by the associated concern and its performance. If, for example, a venture capital firm decides to invest $5 million in a technology startup in return for 10% equity and significant influence, the firm becomes an internal stakeholder of the startup. The return on the venture capitalist firm's investment hinges on the startup's success or failure, meaning that the firm has a vested interest.

External Stakeholders:

External stakeholders, unlike internal stakeholders, do not have a direct relationship with the company. Instead, an external stakeholder is normally a person or organization affected by the operations of the business. When a company goes over the allowable limit of carbon emissions, for example, the town in which the company is located is considered an external stakeholder because it is affected by the increased pollution. Conversely, external stakeholders may also sometimes have a direct effect on a company without a clear link to it. The government, for example, is an external stakeholder. When the government initiates policy changes on carbon emissions, the decision affects the business operations of any entity with increased levels of carbon.

Problems with Stakeholders:

A common problem that arises for companies with numerous stakeholders is that the various stakeholder interests may not align. In fact, the interests may be in direct conflict. For example, the primary goal of a corporation, from the perspective of its shareholders, is to maximize profits and enhance shareholder value. Since labor costs are unavoidable for most companies, a company may seek to keep these costs under tight control. This is likely to upset another group of stakeholders, its employees. The most efficient companies successfully manage the interests and expectations of all their stakeholders.

Why are they Important:

Stakeholders are important for a number of reasons. For internal stakeholders, they are important because the business’s operations rely on their ability to work together toward the business’s goals. External stakeholders on the other hand can affect the business indirectly. For instance, customers can change their buying habits, suppliers can change their manufacturing and distribution practices, and governments can modify laws and regulations. Ultimately, managing relationships with internal and external stakeholders is key to a business’s long-term success.