Recently, the Economist published an article titled: Shareholders v Stakeholders: A new idolatry. http://www.economist.com/businessfinance/displaystory.cfm?story_id=15954434
In it, they made a persuasive case for a sea change developing in the nature of business goals and aims. The article suggests that the old paradigm of operating purely in service to shareholder profits is rapidly becoming a dinosaur. Instead, there is a strong and growing focus on stakeholder value rather than shareholder value. Appropriate stakeholders in a particular enterprise include investors, customers, employees, strategic partners, etc. It is recognized that the ability to balance and optimize the needs of all stakeholders is the mark of a sustainable and healthy enterprise.
Why has this idea taken so long to take root? For years now, many have been advocating for the triple bottom line: people, profit, and planet (often thought of as the three Ps). Well over 10 years ago, John Kotter and James Heskett wrote a profound book called Corporate Culture and Performance, wherein they pointed out that the most effective companies balance the needs of employees, shareholders, and customers.
In my view, to be a great leader one must pay attention to the needs of the whole system, and how can we possibly produce sustainably productive organizations unless the needs of all stakeholders in the system are taken into account. Long gone are the days when shareholder value is the only piece of the equation.
Yes, I am well aware that there are shareholders who invest purely for profitable gain and this will always be the case, but it is the enlightened shareholder that recognizes there must be attention to all needs for the enterprise be sustainable. And aren’t these the kind of investors one would ultimately choose if sustainability were the goal? Many investors talk this game, aware that business leaders often care about such things, but beware the wolf in sheep’s clothing for when push comes to shove, they will indeed shove you out if you don’t maximize their needs above all else, and even to the exclusion of all else. If you are building an organization to sell, puffing up the organization purely for sale may cause you to do things that limit the long-term viability of the firm for short term gains. But if you are building to last, then such efforts are unwise and even counterproductive.
In my 30 years of working with CEOs, I have known many a leader who has focused on what kind of messaging needs to occur so that the stock value goes up. This is a temporary ruse that is not sustainable. The only thing that is truly sustainable is to continue to build value through intelligent long-term decisions designed to strengthen the organization over time. In a world where we are measured by how we did last quarter and how we appear to be doing this quarter, such thoughts appear anathema. In a world designed for sustainable growth, these are the thoughts that matter.