It has been an established consensus that companies should deliver value to its investor’s, this principle, “managing for value”, has been a mantra for managers, consultants, and financial backers of corporations.
Yet recent events in the global financial market, specifically in the US market, shows that when companies fail, they fail not only those who owns its shares, but it fails other parties as well, its employees, government, society, and taxpayers.
In fact, the definition of “investor” should be reviewed, investor in a corporation are not only those who buys it shares; employees invest part of their life, taking a risk that the company will not abruptly fail and left them hanging jobless (those who are honestly love to be suddenly jobless most probably don’t need a job); government invest in a company, hoping that it will pay taxes; societies invest in a company, letting the company to occupy its land, its space, use its human resource, taking a risk that the company will not pollute the environment where the society live, that the company existence will not be detrimental to the society; taxpayers invest in a company, taking a risk that the company will not use the taxpayers’ money when the company management buy complex products that they don’t understand.
The current failure in the US financial system indicates that when companies of certain size or linkages fail, they bring repercussion to parties beyond their immediate shareholders.
When the US government put the taxpayer’s money at risk as it brokers the marriage between Bear Stearns and JP Morgan Chase and provides billions to bailout AIG, then isn’t taxpayers, at that point in time, have real interest in the well being of the company? Shouldn’t taxpayers have a right to say on what and how much value they want these companies to deliver?
If I invest your money in someplace, would you like to know how much return I am offering you? What are the risks? And have I take reasonable protection against these risks?
If society at large, stakeholders, need to bear the risk of companies failing, then stakeholders also need to know whether these companies are providing value for stakeholders, and has proper measure being taken to protect the stakeholders.
All companies need to deliver stakeholder value, enforcing this is not new, taxes, environmental protection laws, corporate social responsibility programs, “best companies to work for” title, are all efforts to ensure delivery and protection of stakeholder value. What new is the coordinated measurement and enforcement on delivering of stakeholder value.
How exactly? By managing the value the company provides along parameters that encompasses the stakeholder’s interest. Companies should start thinking on measuring whether it has improved as a place of employment, has it increased its tax contribution (directly linked to increase in profit, actually inline with the shareholder’s interest), what is the environmental and social footprint of its assets and activities, whether its activities or products harm the society. The companies could also move to actively take, monitor, and report actions it has taken to improve its performance on these parameters.
Delivering value for stakeholder doesn’t necessarily be damaging to shareholders, if a company is identified as a great place to work, it will easily win talent, if a company is known to be beneficial to the society and has good environmental practice, its stakeholder relation should improve, all these leads to increase in business performance.
The business world and government also need to be honest with themselves, if some companies, due to their size and linkages cannot fail, and society will bear the cost to prevent such failure, then these companies investors has effectively move beyond its shareholders. For these companies, a discipline on delivering and protecting stakeholder value should not be an option.
Its time for companies to think about delivering stakeholder value, shareholders are not the only investor in a company; recent events in the US financial industry simply highlight this fact.