Date: 2024-12-21 Page is: DBtxt003.php txt00017245
Management Priorities
Stockholders or Stakeholders
6 Ways CEOs Can Prove They Care About More Than Shareholder Value
Sorry folk ... but we have got to get serious about moving the needle from where we are to where we need to be. I call it management. I am not interested in optimizing for corporate PR but actually changing the trajectory for all the impacts of all the actors in our complicatee global socio-enviro-economic system. I have three priorities: (1) We need to manage for an optimum payroll where economic surplus is shared reasonably between all the stakeholders, especially employees and and not extracted mainly for the C suite and stockholders. (2) We need to know how the company, its supply chain and its products consume energy and impact the environment ... what is the energy content for the products being sold (that is energy per unit of sales!) and (3) We need to know some key information about the material flows through the company.
On its own this information does not add very much, but when combined with standard value profiles for materials it will give a good indication of the impact the company is having on the environment ... and from this we can know a lot more about the unsustainability of the company. At the present time a typical profitable valuable modern company probably needs as much as 7 planets in order to be sustainable and only survives because so much of the world remains poor and provides a sustainability subsidy to the big profitable companies. This is obscene, and should change. In order to manage for this we need more meaningful management metrics! This numbering needs to be visible to all so that investors can drive capital resource allocation to where it is most needed for a prosperous sustainable future!
Peter Burgess
HIROSHI WATANABE/GETTY IMAGES
Somewhere, Milton Friedman must be spinning. Whatever they thought they were doing, the 181 CEOs who signed the Business Roundtable’s breakthrough statement on the purpose of corporations embraced a much wider interpretation of corporate responsibility—signalling the beginning of the end for the shareholder primacy cult. The pressure on business leaders to declare and deliver against a wider social purpose can only grow.
But, as the Washington Post notes, the statement is, in many respects, “a return to the past”. In 1981, the Business Roundtable declared that companies needed to balance shareholders’ interests with “the legitimate concerns of other constituencies.” That concern for “other constituencies” went missing in action in 1997 when the Roundtable endorsed the doctrine of “shareholder primacy”: the belief that the sole purpose of a corporation is to maximize the value delivered to shareholders. The new statement is therefore a reversion to the common-sense interpretation of corporate purpose that prevailed up until Friedman’s thinking became unassailable in the 1980s and 1990s.
Even so, we warmly welcome the Business Roundtable’s initiative, overdue though it is. For 181 of America’s leading CEOs to publicly break rank is hugely significant. But, as several commentators note, what really matters is what they do next. There is a narrow window of opportunity within which to prove that stakeholder capitalism is more than self-serving PR.
So what actions should the 181 CEOs and their boards consider taking to prove that they do mean business? We suggest that they show decisive leadership in, at minimum, one of the following six areas:
- Pay and incentives
One key source of discontent with capitalism has been the escalating ratio between what CEOs earn relative to their employees. For many firms, the ratio between the CEO’s pay and that of their median worker is now well in excess of 200:1. Taking action to narrow the gap – whether that involves curbing executive pay or increasing average wages (or both) – is a critical first step companies should consider. Another would be to follow the advice of Judy Samuelson of the Aspen Institute, who has called on companies to “dampen down the intense focus on stock price in CEO pay.” - Ownership and governance
Another way to better align shareholder interests with those of employees is to make employees themselves shareholders. Creating employee stock ownership plans (ESOPs) – or, where they already exist, expanding them – is therefore a key opportunity. To give real teeth to your commitment to serve all stakeholders, ensure that different stakeholder groups are properly represented in your governance structures. Appointing worker representatives to the Board is one tried-and-tested approach; creating independent advisory boards is another - Taxes and lobbying
In an early Fast Company report on the statement, one of us (John) was quoted as saying that if these CEOs truly embraced the logic, “they would resign from all trade and industry groups which lobby to slow or stall necessary systemic changes.” They would also “forcefully and publicly lobby for a meaningful price on carbon and for the breakup of monopolies and oligopolies.” ... This last point is particularly significant since, as The Economist notes, “if you cast your eye down the list of the 180 American signatories … many are in industries that are oligopolies.” Being an oligopolist may be in your shareholders’ immediate interest, but it certainly isn’t in the best interests of your employees, customers, or society. ... As for tax, CEOs should treat the question posed on Twitter by Anand Giridharadas, author of Winners Take All, as more than rhetorical: “Is there one tax maneuver that is legal but unethical that one company behind the statement will renounce?” - Procurement
Two further stakeholder groups referenced by the Business Roundtable are suppliers and “the communities in which we work.” One powerful step companies can take is to create greater overlap between these two groups, by committing to procure goods and services locally wherever possible. This can help build legitimacy within the community in which the company is based and contribute to the local economy. - Investment
Several commentators have suggested that companies committed to the interests of all stakeholders should not engage in share buybacks – or, at least, reduce their reliance on the practice. This is good advice, so long as the money saved is invested wisely elsewhere. One example might be to invest in energy efficiency retrofits and other improvements to ensure that all facilities owned by the company meet the highest possible environmental standards. This has been shown to create multiple benefits, in terms of reduced energy costs and environmental impact; increased employee wellbeing and productivity; and boosts to the value of such assets. Investments like these can be a genuine “win-win” for all stakeholders. - Products and pricing
Last but by no means least, many Business Roundtable member companies are locked in by business models where the social and environmental consequences, unintended or not, are increasingly problematic. They must take a long hard look at their product and investment portfolios, asking themselves whether there are products that, while profitable, are significantly harmful to the health and wellbeing of key stakeholders. Think of the recent judgement against Johnson & Johnson on opioids. The true mark of leadership would be to withdraw problem product(s), either entirely or to fundamentally re-engineer them to address their negative impacts.
Ideally, companies would take action across all six areas – and more. The critical question for the 2020s will be how business can simultaneously become economically, socially, and above all environmentally responsible (which is where the Business Roundtable is focusing), resilient (which is where the climate emergency is taking us), and regenerative (the next big step). Meanwhile, these 181 CEOs have a simple question to answer: Will you move beyond words to effective action?
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John Elkington is Chairman and Chief Pollinator at Volans. His most recent book is The Breakthrough Challenge: 10 ways to Connect Today’s Profits With Tomorrow’s Bottom Line, co-authored with former PUMA CEO and Chairman Jochen Zeitz.
Richard Roberts leads the Tomorrow’s Capitalism Inquiry.
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