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The shareholder's value: a shift in priorities

I came across this picture on one of my social media throlls and it really spoke to me about the changing function of business today as we look to this particular community to be accountable and deliver some significant impact to our global challenges.

The mentality of old, of ‘what is good for the shareholder is good for the business’ is rightfully being challenged. Rather than management first and foremost considering the interests of shareholders when making management decisions, businesses are being asked to take a longer term and more inclusive view that serves wider society and the environment.

Not only does our climate and other Sustainable Development Goals (SDG) require this longer term view but business’s social licence does too, because society places value on them. So what is more valuable or important? Shareholder value or societal value?

In Judy Samuelson’s, Executive Director of the Business and Society program, remarks before Congress at a Joint Economic Committee hearing, she delivered some fantastic insights into the distracting role shareholder primacy plays in solving our SDG commitments. I’ve pulled some highlights from her testimonial for your benefit but here is the link if you’d like to read in full.

“When corporations put the return to the shareholder at the center of the business model, it leads to diminished investment in other critical needs—investment in both workplace and product safety (think Boeing), climate change, and conservation of vital resources (think VW and the “dieselgate” scandal), and R&D and innovation and skills transfer for the workforce.

It also contributes to our tepid response to climate change.”

“Simply stated, shareholder primacy fuels greater income inequality because gains in stock prices benefit those who own stocks, and most stocks are owned by the wealthy—in fact, the biggest share of stocks are owned by people who are already extremely wealthy.”

“With all the hype today about so-called ESG investment, i.e. the attention paid to “environmental, social and governance” practices of companies, the reality is that the market still rewards actions like laying off workers or putting jobs out to contract—and punishes companies that do the reverse—invest in their workforce.”

The way forward requires a closer look at the “G” of ESG – to what end boards and executives allocate capital in support of human endeavor and our collective future.”

“If we want to address the root causes of inequality—and other externalities of the form of capitalism in play today—we must unwind the system of incentives, informal norms and nudges, formal rules that keep corporate shareholders as the center of attention.”

“To succeed requires an extremely long-term view, strategy, complex relationships up and down the supply chain, and an array of management objectives that respond to changing circumstances and are critical to survive, compete, and attract talent—and to earn public trust, and the license to operate wherever the company hopes to operate.”

A company of note that takes this integrated, inclusive and service orientated approach is Unilever. Under Paul Polman’s stewardship he led the business to thrive under the mentality of ‘give more than you take’. You can read more about this courageous approach in his book ‘Net Positive.

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