Social Engagement

Why to focus on stakeholder value and not only shareholder value

Analysts, like Alex Edmans (who is professor of finance at the London Business School), have come to the conclusion that when businesses focus on their long-term smooth operationtaking into account both the social expectations and the obligations that arise from them, this works as an advantage. According to his new book, “Grow the Pie: How Great Companies Deliver Both Purpose and Profit”: 

“The whole idea of growing the pie means that all companies can contribute, even if you don’t have millions of dollars to give, just by thinking innovatively as to how you can use what’s in your hand to serve wider society.” 

Such an approach presupposes that there will be a continuous effort on the part of companies to set the goals of: 

  • employees, 
  • environment, 
  • communities, 
  • suppliers and
  • whoever is affected by the company’s presence, 

on an equal, if not higher basis, than the value of long-term shareholders, in order to achieve better results for all. 

Each one of the stakeholders has his unique needs and individual perspective:

Employees do not just need to earn a living wage. 

For instance, if companies are a good place to work and give people something which is more important than money, (such as purpose and meaning), they attract better workers, they keep them, and they get better performance. It is as simple as this.

Companies with happier employees are exceeding analysts’ expectations like Apple, the $1 trillion company, offering the highest-quality products, ranked in 2018 the 6th most sought-after employer in the US. The company is one of only 3 US companies that have been listed in Glassdoor’s list of top-100 employers for all 10 years since the list was started.  

Customers deserve good products and services 

Customers deserve products and services that are affordable and do not harm them directly or indirectly. 

Recognizing how goods, services and products affect customers and taking action to reduce the negative consequences, is part of the continuous effort a company should make. According to a review of multiple academic studies, 60% of customers are willing to pay a premium for socially responsible products. People’s buying behaviour often depend on how much they believe a company contributes to society.  

On the other hand, companies that damage society, often experience boycotts, spreading quickly via social media. During the days of the Volkswagen’s emissions scandal leaking, hashtag #boycottvolkswagen was top trending topic on Twitter. As a result, over the next 12 months, company’s light vehicle sales fell by 3,000 per month compared to the industry average increase of 7000.

Thinking in partnerships is important

A company’s success or failure depends on their suppliers and partnerships. Suppliers aren’t “outsiders.” They are trusted partners in the business process. Companies rely on partners that help them provide the best value for their customers. Therefore, strong, trusting relationships with suppliers should be built. 

By having a $5 billion Advanced Manufacturing Fund to support innovation in its suppliers, Apple invests in long-term supplier relationships. For instance, the Fund invested $200 million in company’s glass supplier to continue the advanced glass processing technologies. 

We all need and want a society and planet that lets us breathe. 

A continuous discussion about air pollution, climate change, equity and justice and the rights of citizens in relation to them, seek to find solutions.

When companies invest to protect the environment and to serve the society, it has a positive result to the company. It creates long-term value for their shareholders and a reputation for sustainability, which can be a lasting competitive advantage.  

The $74.7 billion technology solutions provider Hewlett-Packard Corporation (HP), has a history of providing financial and volunteer support to a variety of philanthropic organizations worldwide, as well as is a widely recognized leader in the field of social responsibility. 

Shareholders (Investors) need to earn a positive return.    

‘Investor profits’ relate to ‘shareholder value’, which includes future and current profits. Profits are another form of value. Creating value for society, benefits both stakeholders and shareholders. Since business is a positive-sum game, investors and stakeholders are on the same team.    

Investors are very often colleagues, customers and community members, who are affected by the environment and pay taxes. In that sense, they don’t care only about profits, they also care about the means of living, responsible stewardship, funding, and taxes that a company supply as well. 

Avon Products is one of the Most Admired Corporations according the Fortune magazine, while the company consistently places high on the list of 100 Best Corporate Citizens of the Business Ethics magazine. 

Change is already happening. 

The Business Roundtable on August 2019 released a new Statement on the Purpose of a Corporation signed by 181 CEOs who commit to lead their companies for the benefit of all stakeholders (customers, employees, suppliers, communities and shareholders). 

Thus, from the above mentioned, we may come to the conclusion, that large companies have understood the importance of creating value for all stakeholders, including their employees, customers, suppliers and communities, as well as their investors, and the Business Roundtable statement just confirmed the direction which is in progress.  

Ultimately, no matter how different the needs or the goals of the stakeholders are, it is very important and in the interest of all, the companies in which they are involved, to be successful and viable.  


[1] Why ‘Growing the Pie’ Can Help Firms Deliver Purpose and …

[2] Why the Debate Over Stakeholder Value Versus Shareholder …

[3] From Shareholder To Stakeholder: Business Model shift no.2

[4] Companies Must Decide What Stakeholder Capitalism Means To …

[5] Should Companies Serve Only Their Shareholders Or Their Stakeholders More Broadly? (forbes.com)

[6] Shareholders vs Stakeholders: Who should companies focus on enriching? – Ethical Systems

[7] The Five Trademarks of Agile Organizations | Cleverism

[8] Dame Vivian Hunt: How businesses can serve everyone, not just shareholders | TED Talk

[9] The case for stakeholder capitalism | McKinsey

[10] Book: Grow the Pie by Alex Edmans

[11] Book: Cause for Success by Christina Arena

The original article has been published in LinkedIn

Photo by Ian Schneider on Unsplash