In my strategy design and change planning work, I often come across the prioritization clash between business-model design based on shareholder value or really doing what enables the organization’s stakeholders value, i.e. customers, employees, suppliers and society at large.
The theory of Stakeholder Capitalism is somewhat defined as a market system in which company treats the interest of all stakeholders roughly equally, rather than explicitly favoring investors.
I have been paying more attention to this theory for the last few days, since I read an article in recent The Economist issue about Focusing on Stakeholders or Shareholders. The author articulates how, “a firm’s share price on any given day, needless to say, can be a very poor guide to long-term shareholder value. Yet bosses have their pay linked to short-term movements in share prices”
Also, Roger Martin, dean of University of Torinto’s Rotman School of Management shares a similar article published in Harvard Business Review on how the shareholder-value model is really failing in today’s global economy and argues that “it is time to abandon it”. New academic best practices are debating shareholder value based models and are now guiding us to consider creating value for all types of stakeholders.
All of this sounds good in theory. Most leaders know this. The challenge is putting it in action – Making the Change.
In my opinion, governance, often referred to as separation between ownership and control can play a key role in enabling a system of ‘co-determination’ where all types of stakeholders get an equal opportunity to have a say while balancing the ‘shareholder dictatorship’.
Considering the long-term health, companies should implement profit-sharing strategies where it looks out for not only customers but also its workers and all the impacted communities in its decisions. Stakeholder Capitalism and Chrysler