Stakeholders not shareholders

Stakeholders, not shareholders

Our CEO, Dave Capper, shares his thoughts on this week's announcement from the Business Roundtable that they've updated their definition of the purpose of a corporation, giving less focus on shareholders and more focus on stakeholders.

This week, the CEOs of almost 200 of the USA’s biggest companies hit the headlines. Not for their companies’ performance. Not for a scandal. But for daring to suggest that shareholders may no longer be the number one priority for businesses.

Packed with famous CEOs from Jeff Bezos to Jamie Dimon, for decades the Business Roundtable (BR) lobby group has played a key role in shaping US politics and defining what it means to be a business in America.

Changing from putting shareholders and profit at the heart of a business, the group’s new definition of a corporation makes a “fundamental commitment to all of our stakeholders”.

With this updated definition, the BR are recognising the broader influence of companies. They’re bringing an organisation’s customers, employees and community back into the picture.

A return to the paternalistic employer

Expanding the focus from shareholders to stakeholders might sound like new thinking, but in many ways, it’s a return to a more holistic, paternalistic view of the employer-employee relationship.

Take Henry Ford. We often hear about how he invented the modern production line, but his approach to his employees was equally revolutionary. Determined that his factory workers should be able to afford what they were making, he doubled the average wage.

Ford wasn’t alone; it was an era where ‘human resources’ were at a premium and companies aimed to keep good employees for life, with the hope of creating a more stable, better product as a result.

Putting profit first

Fast forward to the boom and bust cycles of the last few decades, and it’s a different story.

When a recession bites, companies are spoilt for choice when it comes to recruitment. It makes businesses lazy – why invest in your people or give pay rises when there’s a queue of people waiting to take their spot?

The ‘shareholder is king’ mindset that’s led business thinking since the 1970s demands that profit comes first.

If profit is the only metric, how does a CEO justify increasing spending on pensions to his or her board? Or upping the charitable donations budget? Or employing more people to share the load? They can’t.

Picking up the strain of a stressed workforce

The result is an increasingly stretched and stressed workforce. In our first Wellbeing Index of 2019, half of HR respondents told us it wasn’t possible for workers to complete their job during just paid hours. In the follow-up index three months later, 39% report seeing an increase in long-term sign off from work. It’s a rapidly escalating problem.

Businesses might be saving, but as a society we’re picking that cost up elsewhere, somewhere we can barely afford it – our healthcare system.

Stress-related illnesses are costing the NHS over 165,000 bed days per year, racking up a £71.1 million bill that goes straight to the tax payer.

There are indirect costs to businesses too – though few acknowledge it in their bottom line: 12.5 million working days were lost in 2016/17 due to stress, depression or anxiety, costing employers as much as £43 billlion and wiping out up to £14 billion in tax and national insurance revenue.

The hidden cost

Whilst making enough profit to remain a viable, sustainable business is crucial, focusing only on profit from one quarter to the next promotes short-term thinking.

It’s a mindset that risks ignoring your greatest asset – people, and it comes at a cost. On average, recruiting and replacing an employee costs 6-9 months’ salary. For SMEs, that works out as £12k lost on average for every person that votes with their feet and leaves.

The BR’s updated definition is an acknowledgement that focusing on short-term profits isn’t good business sense. Nor is ignoring your customers or your suppliers who keep you ticking over.

A call to action

With all the political uncertainty in the UK and globally at the moment, thinking long term is hard. The knee-jerk reaction is to hold our breath, to watch and wait. If there’s another recession, we risk returning to that ‘you should be grateful to have a job’ employer mindset.

But what if, like the BR, we saw it as a call to arms; an opportunity to lean in, to engage our employees and build the businesses that will still be here in another 100 years?

Cynics might see the BR’s updated definition as just a group of perceptive leaders taking the chance for a good headline – all spin and no substance.

What happens next will show whether the sceptics are right. Will these CEOs put their money where their headlines are? Will they reinvest in their businesses, their people, their communities?

That’s what we’ll be doing. Come and join us.

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