Stakeholder vs shareholder value in a COVID-19 world

  • 21 July 2020
  • Blog | Leadership & Strategy | Blog

Even before COVID-19, anxiety over sustainability, climate change, risk and inequality had added urgency to the shareholder vs stakeholder value debate.

BY SARAH STONE, FOUNDER AND DIRECTOR OF SOCIAL VALUE AGENCY SAMTALER.

In the 1960s, American economist Milton Friedman introduced the idea that a corporation is primarily responsible to its shareholders.

Stakeholder theory, on the other hand, acknowledges the interconnected relationships between organisations, their customers, employees and others who have a stake in the company – and argues that, to be successful, businesses must create value for all stakeholders, not just shareholders.

Before COVID-19, growing anxiety over sustainability, climate change, risk and inequality had already added new urgency to the debate over shareholder value versus stakeholder value.

As the world seeks a future beyond the coronavirus, this can only intensify.

Last summer, nearly 200 chief executives, including the leaders of Amazon, Apple, Pepsi and Walmart, declared that the purpose of a corporation was no longer to advance only the interests of shareholders.

“This new statement better reflects the way corporations can and should operate today,” said Alex Gorsky, Chairman and Chief Executive of Johnson & Johnson and Chair of the Business Roundtable Corporate Governance Committee. “It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”

Since 1978, the Washington, D.C. based Business Roundtable has periodically issued Principles of Corporate Governance on behalf of its members, who are the chief executives of major US companies.

The Roundtable’s Statement on the Purpose of a Corporation commits its members to delivering value to their customers, investing in their employees and dealing fairly and ethically with their suppliers.

Corporations must also support the communities in which they work, including respecting the people in those communities and protecting the environment by embracing sustainable practices.

“It can no longer be business as usual, with an exclusive focus on shareholder returns,” Richard Edelman said in the 2020 Edelman Trust Barometer – an influential annual gauge of how people feel about institutions in 28 countries around the world.

In their unquestioning support for efforts to tackle the COVID-19 pandemic, businesses across the globe are already putting stakeholders first – and demonstrating the essential role they play in improving our society.

Read our ‘Putting society first’ feature on page 28 of the Spring issue of Chartered Banker magazine.