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Stakeholders vs. Shareholders and the Importance of Both

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Pop quiz: What’s the difference between a stakeholder and a shareholder? Here’s a hint: it’s at the root of some problems that have affected Indiana communities.

In Evansville, approximately 1,500 people gathered to protest the planned closing of a Whirlpool factory. The Oakland Press reported on some of the notable comments from those assembled:

AFL-CIO President Richard Trumka and International Union of Electronic Workers-Communication Workers of America President Jim Clark joined about 40 other protesters in delivering a petition to the factory’s front door asking that the plant not be closed.

“Eleven million jobs have gone with the great recession. Nothing, nothing, is more important here at this moment,” Trumka told a packed room at the Local 808 chapter of the IUE-CWA, which represents many of the workers at Whirlpool’s Evansville plant.

The numbers in these headlines are staggering. They represent tremendous hardship for so many people. Yet at its core, this is a struggle between stakeholders and shareholders. This brings us back to the original question at the top of the post. A shareholder is an individual who has made a financial investment in an organization in the form of capital. A stakeholder, however, is someone who has made an emotional investment of time, labor, and relationships.

The key difference made evident by the situation in Evansville is that shareholders can move their investment with little more than a phone call. Stakeholders, however, don’t usually desire such changes. They have emotional ties to their community and usually want the environment to stay the same.

Indeed, when these jobs were first created decades ago, there was an implicit assumption that they would remain. Factories require an enormous investment in equipment, construction, maintenance, and training, so it seems reasonable to expect companies to stay in one community. In those days there were pension plans and other incentive programs designed to retain employees for their full working life. Local governments encouraged this relationship through tax abatements. People could become stakeholders and be relatively confident that they could be employed at the same company for their entire career.

surprised consultant

© Flickr user Sinn Féin

As millions have learned, however, no job is guaranteed.  Shareholders and stakeholders both need to see their investments provide a meaningful return. If someone else is willing to do the same job at a cheaper rate, the market will eventually drive shareholders to enable that to occur. Likewise, if stakeholders are able to demonstrate increased value to their employers, they can help their business grow in a way which benefits their own needs.

Protests and industrial action are one way to highlight that value. These techniques do illustrate the role businesses play in communities and show that the relationship between a factory and a town is more than merely financial.

There is another way to show value at work. Through individual innovation, employees can demonstrate that cheaper labor is not necessarily better. Workers who think intelligently about their own tasks, who come up with new ways to conduct workflow and thus help contribute to increased productivity offer a profound voice to complement those on the picket line. This will certainly help shareholders and stakeholders speak the same language and connect their mutual investments.

These are challenging times. Millions are enduring the risk of job loss or unemployment. The way forward is to return to work, but as always we must learn to work smarter. No matter the job, the human being doing it should be empowered to take responsibility and authority to do that job better. Smart shareholders always favor smart companies, and smart companies foster individual innovation.  Make an investment in your stakeholders by asking them to help you improve work.

Thanks to Indiana resident Cara Dafforn for bringing the Evansville protest to our attention.

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