What does “stakeholder” mean for nonprofit organizations?

The term “stakeholder” refers to any entity, whether an individual or a group, that has an interest in interacting with your nonprofit organization. Stakeholders can include individuals directly involved in the organization's work, such as board members, or the group targeted by your organization’s activities, or donors, or institutions that provide assistance to you.

The term “stakeholders” can include many other individuals or groups, even if they have an indirect connection to your organization, such as suppliers or service providers you rely on. All these individuals and groups can be affected by what your organization does, so they can help define what you do.

Stakeholders in traditional nonprofit organizations:

This list includes employees, members, volunteers, board members, and generous donors who help you sustain your operations. It also includes stakeholders who benefit from your services. For example, beneficiaries of your organization’s services may include the homeless or just regular customers, such as volunteer team members who participate through engaging in various activities. Additionally, nonprofits should provide excellent customer service, just as commercial businesses do.

Donors, such as grant-making institutions or governmental or quasi-governmental agencies that provide funding, are considered stakeholders. Since every charity must have a significant number of sources for fundraising, each source that brings stakeholders must continue to attract attention and encourage individuals to want to engage.

Your local community is also a stakeholder, as every nonprofit is part of a larger community. As such, nonprofits must respect and engage in community activities, and work to educate community leaders, institutions, and government agencies. Most charitable organizations now realize that they cannot accomplish their missions or fundraise alone, so they must collaborate with other charities instead of competing with them.

Understanding the technical and legal aspect related to stakeholders

There are many government-recognized nonprofits, each with different legal responsibilities and structural frameworks. In fact, the first thing we usually think of when mentioning “nonprofit organizations” is the organizations we donate our money to and volunteer to work in, through which we receive numerous nonprofit services.

Stakeholders in nonprofits fall into three legal categories: constitutional, contractual, and third-party.

For nonprofits, constitutional stakeholders are board members or trustees if your organization is incorporated. Regarding unincorporated nonprofits, board members can be referred to as a management committee.

In both cases, constitutional stakeholders are responsible for managing the organization. For nonprofits, board responsibilities are well-defined. Conversely, board members may face legal issues if they do not manage the organization responsibly.

The greatest issue board members may face is conflict of interest, particularly as these potential conflicts are common and must be avoided at all costs. In this regard, board members should not make decisions that serve their personal interests or their relationships or loyalties to other people or organizations.

There are several ways to avoid conflicts of interest, but taking into account the potential disputes that may arise when appointing board members is the first line of defense. Board members should be able to identify their potential conflicts and disclose them, then refrain from voting on issues that may provoke disputes.

“Contractual stakeholders” represent paid employees, funders such as institutions, or any company, group, or individual with an official relationship with the charitable organization. “Third-party stakeholders” are all individuals and groups that may be affected by what the nonprofit organization does, such as businesses, the local government, and citizens living in that community.

The difference between stakeholders and clients

Although many stakeholders in nonprofits are similar to “clients” in their commercial sense, there is a clear distinction; nonprofits rely on engaging stakeholders in their institutions. However, with clients, the organization purchases a product or service without engaging in the business process.

Nonprofits work to develop detailed programs to keep stakeholders interested and active, more than they focus on keeping donors happy through intensive communication and organizing numerous events or creating rewarding experiences for volunteers. This is what we call good management or relationship management.

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The Balance SMB

Author: Joan Fritz