A stakeholder refers to an individual, a group of persons, an economic entity or an institution that can affect a business organization by its actions or can be affected by the actions of that business organization. Every stakeholder is important for a business entity but some stakeholders exert more influence and are therefore considered more important than others. On the basis of importance, stakeholders of a business are usually categorized as primary stakeholders and secondary stakeholders.
This article defines and explains the difference between primary stakeholders and secondary stakeholders.
Definitions and explanations:
Stakeholders that hold a direct interest in a business or organization and its dealings are known as primary stakeholders. These stakeholders usually invest their financial capital directly into the business. Examples of primary stakeholders include shareholders, employees, customers, suppliers, vendors and business partners.
Stakeholders that do not hold direct interests in a business but can have a reasonable influence over a business’s dealings are known as secondary stakeholders. An organization does not directly depend upon these stakeholders for survival of its immediate interests. Business competitors, trade unions, media groups, pressure groups and state or local government organizations are some examples of secondary stakeholders.
Difference between primary and secondary stakeholders:
The main points of difference between primary stakeholders and secondary stakeholders are as follows:
1. Primary nature:
Primary stakeholders of any organization are those stakeholders without which the organization cannot survive or sustain in the foreseeable future. This is because these stakeholders have a direct and immediate impact upon the financial and/or non-financial matters of the business. These stakeholders experience a clear foot print in result of the direction adopted and decisions made by their related company and vice versa. On the other hand, secondary stakeholders are those stakeholders that neither have a direct stake in the business nor do these face a direct financial impact due to decisions made by the business, but these stakeholders may have a strong or weak influence over the commercial activities and the decisions made by the business.
Primary stakeholders, as the name suggests, are very vital for an organization because these stakeholders are important for its continued survival. An organization needs to make sure that it maps its primary stakeholders very effectively so that it meets their requirements and act according to their respective demands. Secondary stakeholders are less important than primary stakeholders but they are not completely irrelevant, therefore mostly businesses need to put effort to keep these stakeholders satisfied. However, many secondary stakeholders like governments and tax authorities may convert into primary stakeholders based on the jurisdiction and the extent of power they can exert over the business entity. A business must keep track of the respective interests of such secondary stakeholders and maintain a liaison with them to ensure that they remain satisfy in the best interest of the business to the maximum possible extent.
3. Identification and scope:
Primary stakeholders are normally easily identifiable because of their financial dealings with the company but secondary stakeholders are not always easily traceable. The reason behind this is that primary stakeholders are more likely to have a monetary stake in the company where secondary stakeholders may only have a degree of influence. Normally, many secondary stakeholders are not recognized by a business until they become vocal and criticize a certain decision or initiative taken by the business.
The scope for being a secondary stakeholder is wider as compared to a primary stakeholder. The importance of key secondary stakeholders must not be undermined because their identification is crucial for continuous and smooth business operations.
Primary stakeholders vs secondary stakeholders – tabular comparison
A tabular comparison of primary and secondary stockholders is given below:
|Can directly impact the commercial activities of an organization.
|Can exercise influence over the commercial activities of an organization.
|Shareholders, employees, directors, customers, suppliers etc.
|Government, media outlets, pressure groups, trade unions etc.
|Are very important for an organization to sustain its business activities.
|An organization must keep these stakeholders satisfied.
|Are easily identifiable because of a financial stake within the business.
|Are sometimes difficult to identify because of their inactivity.
Conclusion – primary stakeholders vs secondary stakeholders:
Every organization has various stakeholders attached to it in one or another way. These stakeholders vary according to the degree of influence they can exercise on the organization based on their respective standings.
Business organizations use different models like Mendelow’s Matrix Model and Salience Stakeholder Analysis Model to segregate their stakeholders into different groups. The key thresholds for discovering the stakeholders and gauging their influence on the organization are based upon two basic aspects – the interest of a stakeholder in the activities of the organization and the power or influence he can exercise upon the organization and its activities. This is important as it helps organizations devise counter response towards the respective interests and influential positions of its stakeholders.