Internal stakeholders are stakeholders inside the company. They have a direct interest in the company while also affecting the company’s operations. They contribute to the company’s internal functions or have ownership relationships. This term is also called inside stakeholders.
The opposite is external stakeholders. They are outside the organization and do not work to carry out functions within the company. Examples of external stakeholders are customers, suppliers, investors, and the local community.
Types of internal stakeholders and their roles
Internal stakeholders are the people closest to the organization. They include:
- Shareholders or stockholders
- Employees, including the board of directors, managerial employees, and non-managerial employees.
Internal stakeholders 1: shareholders and their significance
They are the owner of the company and, thus, they have a claim on company resources. They invest some money by buying company shares or contributing to the company’s initial capital.
Entrepreneurs need initial capital to set up a company. They may use money from their pocket or borrow from a bank. With this money, they employed many workers, bought raw materials, machine tools, and other capital assets.
When companies grow and need extra capital, they can borrow more from banks. Or, they can also raise money by issuing bonds or an initial public offering of shares. We refer to buyers of corporate debt securities as creditors. Meanwhile, those who buy company shares, we call shareholders.
So, when you buy shares (or stock) of a company, you are a shareholder. You can have a significant influence on the company when held a majority of the company’s shares. In contrast, when you buy a few stocks, your power is insignificant.
You are willing to buy the company share only if its return is attractive. With the high return, your money grows. The potential return of a stock is a dividend. You also have the potential to get capital gains from stock price appreciation.
But, no guarantee the company will distribute dividends or the company’s stock price will rise. When the company does not promise a favorable return, you should withdraw your investment.
How big the impact of withdrawals on the company, it depends on the percentage of your ownership. When you own a substantial part of company shares, withdrawals cause the stock price to fall.
It is difficult for companies to gather enough capital when their stock price fall. What’s worse is when they also have high leverage (debt). When they issue shares for the second time (right issues), the company only raises a bit of money because of falling prices. At the same time, they cannot owe more due to high debt levels.
On the other side, shareholders also concern about the money they invest. They should make sure their investments are profitable. To get a higher return, they try to influence the company, both in policies and strategies.
In most companies, shareholders do not supervise the company directly. They delegate it to the board of commissioners, who act on their behalf. When they own a majority of the company’s shares, they can appoint the right commissioner to represent their interests.
Majority ownership also allows them to have strong voting power for strategic issues. They can affect mergers and acquisitions or select the board of directors.
Internal stakeholders 2: Employee and their significance
Two types of company employees are managerial and non-managerial employees. They get compensation and psychological satisfaction in doing and completing work. Compensation can be monetary (such as salaries, bonuses, and stock options) or non-monetary (such as career paths).
Managerial employees include the board of directors and other company executives. They are responsible for allocating and coordinating company resources and developing strategic competitiveness. They supervise the work of non-managerial employees. They also strive to ensure the company’s success and maximize company value.
Managerial employees, especially the board of directors, contribute skills in empowering company resources. Such skills are crucial in directing the company to achieve a competitive advantage.
For a lower position, managerial employees distribute tasks. And, they also supervise the work of non-managerial employees or staff.
The required skills vary for various business positions and functions. In marketing, a chief marketing officer (CMO) should have expertise in producing innovative products. He also experts in identifying new product markets.
Meanwhile, in the financial department, a chief financial officer (CFO) must be proficient in optimizing the company’s capital structure and managing the company’s money.
At the top, a chief executive officer (CEO) needs the expertise to coordinate various business functions (including the work of CMO and CFO). So, they synergize to achieve company goals.
They are the people who get their respective duties and responsibilities. In contrast to managerial employees, they do not have subordinates. Thus, they do not supervise or manage the performance of other staff.
When you are part of this type of employee, your contribution depends on how well you carry out daily tasks and work. When you show excellent performance, you should get more significant compensation or promotion for a higher position. And your success is independent of your colleague’s performance. That contrasts with your boss (managerial employee), where his success depends on the success of you and your colleagues.
Companies may use rewards and penalties to motivate you to work. Rewards can be in the form of a better career path (promotion) or a higher salary. When your performance is excellent, but you don’t get the appropriate compensation, you may feel frustrated. That will affect your performance in the future. Thus, you might quit the company and choose another company with a better compensation offer.
Losing key staff like you is harming the company. The workflow can’t runs smoothly when the company hires someone else who is no better than you. Furthermore, when your other colleagues follow your steps and leave, that is a significant loss for the company.