Rethinking the stakeholder verses shareholder divide

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, chief executive of FCLTGlobal, said organisations and investors should stop viewing meeting the needs of other stakeholders as a trade-off.

Instead, investors and businesses, and by extension policymakers, should “shift to an evaluation of investments in stakeholders, just like one would evaluate investments in other key elements of business strategy, such as technology, brand or traditional capex”.

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Williamson said business leaders were not adequately moving in this direction, with 181 CEOs from the US’s Business Roundtable reneging on a 2019 agreement to lead for the benefit of all stakeholders, including customers, employees, suppliers, communities, and shareholders.

She said the recent backlash against and subsequent disintegration of Europe’s football Super league, was an example of what could go wrong if stakeholders were not properly managed.

In this example, shareholder’s interests were put before the interests of fan’s which led to the demise of the proposed football league.

Stakeholder management should be authentic; it should not be corporate social responsibility, charity, short term environmental, social and governance (ESG) goals or about issues that do not pertain to the company’s core business, she said.

A good example of effective stakeholder management was Unilever’s distribution of free soap in Africa which, while coming at a cost financially, built the brand of the business and saved many lives.

“When the company wins, the employees, the customers, the other stakeholders [and] the shareholders have an opportunity to win. If the company doesn't succeed, none of those have the opportunity to win,” she said.

She said investors should put more pressure on businesses to effectively implement stakeholder management initiatives by asking management questions such as, ‘what is the expected return on investment of this stakeholder initiative?’ or ‘how long will the investment take to pay off?’

Williamson said the best companies in this space got ahead of the curve by internalising negative externalities before they were required to do so.

For example, Royal DSM, a Dutch multinational corporation active in the fields of health, nutrition and materials, enacted an internal carbon price before it was legislated.

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