Does Serving Stakeholders Hurt Shareholders?

In many respects, an embrace of stakeholder governance is best characterized as a recalibration rather than a sea change. The board’s objective continues to be the long-term health and profitable success of the corporation, and it must continue to exercise its business judgment to achieve that outcome. To be clear, the essence of stakeholder governance is not about altruism, nor does it enable corporations to promote the interests of some stakeholders at the expense of others for reasons that are not squarely anchored in the best interests of the corporation. Shareholder concerns about the prospect of zero-sum trade-offs between shareholders and other stakeholder interests should be mitigated to a large extent by the fact that shareholders are the ultimate beneficiaries of the financial value of the corporation.

What is a shareholder?

We’ve taken a long-term perspective in all this and although this action will negatively impact our short-term results, we believe the benefits to our people, our customers and ultimately our shareholders will be worth the investment. The traditional economic chart illustrating the supply and demand curves implies that the company is a single actor. As a simple example of mortgaging your moat, think about how cable TV companies relentless raised prices until many consumers took a certain pleasure in “cutting the cord” and moving to a streaming service. Communities are major stakeholders in large businesses located in them. They are impacted by a wide range of things, including job creation, economic development, health, and safety. When a big company enters or exits a small community, there is an immediate and significant impact on employment, incomes, and spending in the area.

All that’s true, but what we at Eventide would say, what is underappreciated is the effect that stakeholders have back on to the business, the effect that stakeholders have on business success. As we take this journey of seeking to apply a wise framework, what’s smart and what’s right in investing, we will show how creating value for stakeholders in our view can lead to long-term investing success for shareholders. Shareholders, we know of course — that’s the beneficial owners of the company.

Internal stakeholders of a company or project can include employees, project managers, boards of directors, donors and investors. These individuals are often referred to as primary stakeholders, or key stakeholders, because they have a direct stake and important role in the company’s or project’s success. During a crisis, companies must react in ways to preserve the long-term financial health of the business. But while these actions may well have helped maximize short term profits, were they the right move to maximize long term profits? Given that demand for title insurance has coming roaring back over the past few months and is now higher than it was before the pandemic, it seems unlikely with the benefit hindsight that significantly reducing staffing was the right move.

Employees

A successful stakeholder management strategy depends on strong, productive stakeholder engagement. This involves proactive engagement with stakeholders throughout the various phases of a project. A key part of this engagement is learning and meeting stakeholders’ expectations and goals. Organizations should document stakeholder interests, consistently follow up with them through a communication plan and provide them with status reports. Just as shareholders benefit from supporting value creation across the company’s other stakeholders, so do those other stakeholders benefit from supporting economic value creation for shareholders.

These two words sound similar, but they actually represent two very different roles. There, a stakeholder is an individual or group in temporary possession of money or property while the owner is being determined in court. “During is amount invested by the stakeholders the month of April, we made the difficult decision to reduce staffing in our field operations by 18% and in our corporate environment by 11%.

Key Takeaways

Customers are actually stakeholders of a business, in that they are impacted by the quality of service/products and their value. For example, passengers traveling on an airplane literally have their lives in the company’s hands when flying with the airline. All stakeholders are bound to a company by some type of vested interest, usually for the long term.

Once stakeholders are identified, stakeholder analysis weighs the demands and influence of those stakeholders, then ranks which ones are most likely to influence or be influenced by the company’s actions. This information is used to make more balanced and effective business decisions. Because externalities seem like “someone else’s problem” investors and many companies operate as if they are irrelevant. Many transactions include at least small positive and negative externalities that will never be relevant to either the buyer or the seller. But when negative externalities are large, they begin to accrue as an “off balance sheet liability” and the risk that society demands that these costs be crammed back to the buyer or seller becomes a very material risk.

Stakeholders come in many different forms, from independent contributors to company executives. And they don’t have to be within your organization either—for example, an external agency you work with might be a stakeholder on an upcoming event. Similarly, your customers can be stakeholders when their preferences directly influence your product. As a shareholder, you want to get the most financial return on your investment.

1. It is a widely held myth that public corporations have a legal mandate to maximize shareholder wealth.
2. This view seems like exactly what a hard-nosed, profit seeking capitalist should focus on and that any deviation from this orthodoxy to meet the needs of other stakeholders must by definition represent a distraction from the purpose of profit seeking.
3. Advisory services provided by Carbon Collective Investment LLC (“Carbon Collective »), an SEC-registered investment adviser.
4. However, shareholders are often most concerned with short-term actions that affect stock prices.
5. A shareholder (also known as a stockholder) is someone who owns shares of a company.
6. The fiduciary duty of a board of directors is to the corporation; not just to the shareholders.

What Legal Rights Do Shareholders Hold?

The next day, the kids who paid for the party had a great time and feel like it was money well spent. The beer company and the band also earned value through the transaction. Now imagine everyone in the neighborhood making transaction decisions without accounting for externalities.

1. Classical economics recognizes that “externalities,” the positive and negative value earned by entities not directly party to a transaction, are very real.
2. Some total amount of value was created and split between the buyer and the seller.
3. Internal stakeholders of a company or project can include employees, project managers, boards of directors, donors and investors.
4. Finally, we’ve also come to recognize that corporate accountability and investor stewardship shouldn’t apply just to big public companies.
5. That means you’re probably interested in how the company performs on a high level, because stock prices go up when the company does well.
6. Externalities have been understood by the economics profession for a long time.

Shareholders are stakeholders who are financially invested in an organization. While stakeholders are interested in a company’s overall performance, shareholders have an added interest in the company’s stock performance or return on investment. External stakeholders are those outside of a company who are indirectly affected by its decisions and outcomes.

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