There was some amazing news coming from Wall Street a few weeks ago. 181 CEOs, members of the so-called business roundtable and representatives of some of the largest companies in the USA, declared that maximizing shareholder value is no longer the single purpose of their companies. Instead, the emphasis would shift towards stakeholders.
I believe that many people out there don’t understand the difference between a shareholder, and a stakeholder. Or they didn’t take the manifest seriously. Otherwise, I have no reasonable explanation of why this fundamental shift in corporate management attitude doesn’t receive more coverage.
Shareholders vs. Stakeholders
The definition of a shareholder is very simple: Someone who owns shares of a company.
The definition of a stakeholder, however, can be very complicated: It’s everyone who is in direct or indirect relation with a company.
This includes the shareholders. But it also includes the employees, business partners, land-owners, basically all who are affected by the companies operations. It includes the entire eco-system in which the company is active, including the environment.
With a similar mindset to the one of thinking global and acting local, a company that takes care of its stakeholders will do its best to contribute to society in every aspect that makes sense and where the company can make an impact within the scope of its operations. Starting with its own employees, support to local governments, business partners and spreading into larger topics and areas as long as they are related to the companies business.
A holistic concept
This is a true game-changer. It acknowledges that a company, any company, carries responsibility towards society as a whole. It assumes the understanding that the companies’ employees are actually a true and real asset and require at least as much attention as its shareholders. It also acknowledges that company profits need to receive a long-term consideration that goes beyond quarterly reports.
Putting stakeholders to the front of a companies responsibilities is a holistic approach to business.
Too good to be true
I had (and still have) some serious doubts when I read the news. Especially when I noted that Jeff Bezos is a signatory of the declaration, my alarm bells went off.
The CEO of Amazon is hardly known to be a person who cares for his stakeholders. If he signs such a treaty, it automatically degrades the value of the paper it’s written on. Jeff Bezos and Amazon have gained amazing success over the years making Bezos the richest man on this planet. But his contribution to the world ends with the shopping experience.
Compared to people like Bill Gates or Warren Buffett, his priorities and philanthropic efforts seem almost non-existent. The most diplomatic word that would come to my mind would be “uninspiring”.
Same would account also for a few other CEOs and companies which have shown little effort in the past to take care of their stakeholders. Is this declaration really going to change it? Or is it just a PR stunt?
Shareholders will profit – in the long run
Time will tell, but I do believe that among many SMEs out there, the idea is nothing new. In fact, most family-run business and small enterprises which are not listed on the stock exchange had this approach on their business cards for a long time. It’s been the large corporations who moved into a questionable and unsustainable business mind – and it’s time that they get back on track.
Being an investor and shareholder myself, you might wonder why I applaud this change. True, some companies might have to review their supply chains, work procedures, payrolls. This might affect profit margins and ultimately the dividends that I collect every month.
But I rather see my dividends growing steadily over a period of 50 years than to read news about how the companies that I am invested in are contributing to environmental destruction, abuse of workers and handling its business partners unfairly, only to secure a slightly higher profit percentage.
The employees are at the heart of a company. Business partners and the environments are the tools, places and customers that ensure it stays in business. The way I see it, putting stakeholders first is definitely a smarter approach to do business and shareholders will profit from it on a much wider spectrum.