"Stakeholder" refers to anyone, individual, or group that has an interest in your nonprofit. It includes people directly involved, such as board members, people you serve, donors, or foundations that give you grants.
Many other individuals or groups can be stakeholders, too, even if they are more indirectly involved, such as vendors where you purchase supplies or services. A stakeholder can be the company that sponsors one of your events.
All of these individuals and groups can be affected by what your organization does or even help determine what your nonprofit does.
Typical Nonprofit Stakeholders
- Employees (whether paid or unpaid volunteers)
- Members (some nonprofits have paying or honorary members)
- Volunteers, from board members to the generous folks who help you keep your organization running.
- Beneficiaries of your services or "customers." These beneficiaries might be the homeless people you serve or clients, such as YMCA subscribers who participate in activities. Excellent customer service is a must-have for nonprofits, just as it is for commercial businesses.
- Donors, grant givers such as foundations, state, or federal agencies that provide funding are stakeholders. Every charity should have a basket of income from a myriad of sources. Each source brings stakeholders that must be kept interested and engaged.
- Your local community. Every nonprofit is part of a broader community, a citizen of society. As such, nonprofits must honor and participate in community activities and cultivate community leaders, institutions, and government agencies.
- Other nonprofits. Most charities now realize they cannot accomplish their missions or raise funds by themselves. Think about partnering with other charities rather than competing with them.
Getting Technical and Legal
There are many types of IRS-recognized tax-exempt nonprofits. But, charitable organizations or 501c3 charities are what we usually think of when we think of "nonprofits." Those are the organizations where we donate, volunteer, and receive many services.
Stakeholder theory can be quite complicated, but in general, nonprofit stakeholders fall into three categories: constitutional, contractual, and third parties.
For charitable nonprofits, constitutional stakeholders are governed by the organization's bylaws. They are your board members or trustees if your organization is incorporated. For unincorporated nonprofit associations, the board members might be called the management committee.
Constitutional stakeholders have the responsibility of overseeing the organization. For a charitable nonprofit, those board responsibilities are well defined by the bylaws of the nonprofit.
Board members can get into legal difficulties if they fail in their oversight of the charity.
The largest risk for board members is conflicts of interest. Potential conflicts are rife and must be diligently avoided. Board members must not base decisions about the charity on their personal interests or their relationships or loyalty with or to other persons or organizations.
There are numerous ways to avoid conflicts of interest, but a formal board policy regarding conflicts of interest and education about what conflicts are when you recruit board members are the first lines of defense. Board members must be able to identify and declare their potential conflicts and then abstain from voting on issues where a conflict might exist.
Contractual stakeholders for a charity include paid staff, funders such as a foundation, or any business, group, or individual that has a formal relationship with the charity.
Third-party stakeholders for a charity include all the people and groups that may be affected by what the charity does. That includes local businesses, the local government, and the citizens who live in the community.
Stakeholders vs. Customers
The nonprofit sector loves to argue about whether their donors (one type of stakeholder) should be treated like businesses treat customers.
Although many stakeholders of charities resemble "customers" in the commercial sense, there is one glaring difference.
Charities depend on getting their stakeholders involved in their organization. When we are customers, we buy a product or use a service, but do not get very involved in the businesses we use. Our loyalty can often be purchased with a money-back option or a lower price.
Charities develop elaborate programs to keep stakeholders involved and interested, from maintaining happy donors with lots of communication and events or creating rewarding experiences for volunteers. We call this stewardship or relationship management.
Customer service for charities turns out to be more constant and more profound when done right, than the relationship between a business and its customers.
But, charities can and do borrow some of the concepts of good customer relations from the marketplace. Charities can study how businesses keep their customers through constant communications, marketing, and providing excellent customer service. Charities can then apply those ideas to their own stakeholder relations, especially donors.
Charities often think that once they provide a service to the people or animals they protect, their job is over. However, to develop a long-term sustainable organization, they quickly learn that cultivating and nurturing their stakeholders is just as crucial to their cause as their primary activities.