Shareholder greed and subsequently the “do or die” need for the CEO to perform year on year has become a pervasive illness in big corporates since the 1980’s. Robert Reich, Chancellor’s Professor of Public Policy at UC Berkeley, noted: “In the 1980’s, corporate raiders began mounting unfriendly take-overs of companies that could deliver higher returns to their shareholders – if they abandoned their other stakeholders.” The raiders reckoned that profits would be greater if these companies would fight the unions, get rid of “superfluous” employees, automate as many roles as possible or ship the work to other countries where workers are paid less, decommission unproductive facilities and ignore the communities where they were located and squeeze suppliers and customers. Although no legal requirement to optimise shareholder value exists, shareholders have the right to change directors at a whim. Reich suggests that the raiders pushed the shareholders to vote directors out who wouldn’t make these changes and vote in directors who would (or else sell their shares to the raiders who would do this “dirty work”). He concludes: “Since the 1980’s, shareholder capitalism has replaced stakeholder capitalism. Corporate raiders have morphed into private equity managers (and unfriendly take-overs are now rare), but it’s now assumed that corporations exist only to maximise shareholder returns”.
Jack Welch (former CEO of General Electric) also argues: “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy. Your main constituencies are your employees, your customers and your products”. It would seem that, in their ongoing quest to maximise value for the “greedy” shareholders, director attention is focused solely on delivery of that value for shareholders, but typically at the expense of everything and everyone else. The resulting “suffering” is seen in many ways:
- Low morale, insecurity and lack of trust in employees
- Less jobs within communities
- Value propositions weakening in the eyes of the customer
- Supplier indifference and possible antagonism
- Labour disruption
- Disempowered and even toxic work environments
- Less training and employee development
- Suspicion surrounding the brand
On the other hand, stakeholder capitalism has been seriously criticised as being inefficient in that it locked up resources in unproductive ways – CEO’s were too complacent, companies were too fat (for having too many employees that they didn’t need and for paying them too much) and that they were too connected to their respective communities. This “charity” perception and somewhat negative view of stakeholder capitalism, however, misses the need for “fairness” and sustainability principles in business practise – fairness to shareholders, customers, employees, communities, the economy and the environment. Businesses do exist to make profit and create value for shareholders and, at the same time, become enablers – contexts of possible growth for people and their respective communities. A sole focus and execution on the former is not sustainable.
Interestingly, some of the world’s greatest business people and their businesses focus on things other than making money. This generally involves manufacturing goods/providing quality services for which people want to pay good cash, rather than an obsession for growth. Their leaders tap-dance to the workplace daily and lead their companies through a set of values far removed from the value-enhancing conceits of many private equity consultants. Employees in these companies feel valued and willingly offer contributions to causes bigger than themselves. Shareholders gain satisfaction and reward both from financial and community/environment involvement.
Companies should not be treated as entirely private enterprises, given the far-reaching public impact of their conduct. Stakeholder capitalism implies that everyone and everything is taken into account in all business growth and operational endeavours. This is not exclusive of shareholder value. Maybe companies should be seen as public institutions that assist in advancing common interests and also creating and distributing wealth? Here, according to Prem Sikka: “Directors would be seen as trustees of stakeholders rather than as agents of shareholders with sectional interests”.