Rethinking the divide between stakeholders and shareholders
Putting shareholders first is a long-held belief in business, but in the modern world other stakeholders can be just as important, according to investment advocacy group FCLTGlobal.
Speaking at the CFA Societies Australian Investment Conference, Sarah Keohane Williamson, CEO of FCLTGlobal, said organizations and investors should stop seeing meeting the needs of other stakeholders as a compromise.
Instead, investors and businesses, and by extension policy makers, should “move on to evaluating stakeholder investments, just as one would evaluate investments in other key elements of business strategy, such as technology, brand or traditional investments ”.
Williamson said business leaders were not moving adequately in that direction, with 181 CEOs of the U.S. Business Roundtable waiving a 2019 deal to lead for the benefit of all stakeholders, including customers, employees, suppliers, communities and shareholders.
She said the recent backlash and subsequent disintegration of the European Football Super League was an example of what could go wrong if stakeholders were not properly managed.
In this example, the interests of shareholders were placed before the interests of supporters, which led to the demise of the proposed football league.
Stakeholder management must be authentic; they should not be corporate social responsibility, charity, short-term environmental, social and governance (ESG) goals or issues that are outside the core business of the organization. business, she said.
A good example of effective stakeholder management has been the distribution of free soap by Unilever in Africa which, while at a financial cost, has built the company’s brand and saved many lives.
“When the company wins, employees, customers, other stakeholders [and] shareholders have an opportunity to win. If the business is not successful, none of them have a chance to win, ”she said.
She said investors should put more pressure on companies to effectively implement stakeholder management initiatives by asking management questions such as “what is the expected return on investment of this initiative from the parties?” stakeholders? Or “how long will the investment take to pay off?” “
Williamson said the best companies in this space have gotten a head start in internalizing negative externalities before they are required to.
For example, Royal DSM, a Dutch multinational active in health, nutrition and materials, adopted an internal carbon price before it was legislated.