Milton Friedman, the Nobel Prize winning economist whose ideas helped shape the shift in economic policy creation, proposed that organizations’ only social responsibility is: “To use its resources and engage in activities designed to increase its profits.”
With this in mind, whilst we may all work for a CEO, the real owners and therefore drivers of the business are the shareholders. These shareholders can be individuals, or organizations that own at least a part, or a share, of a company and therefore have a vested interest in the financial performance and profitability of said company. Therefore, many c-suites in the business world consider shareholder value when making strategic decisions about the future of the organization they lead. Whether this means laying off workers, closing factories, making acquisitions or moving into new regions. Ultimately, business leaders are constantly chasing revenue growth and profitability in an effort to appease the very people who made their business possible in the first place, the shareholders.
This model of business has been in place since the very first stock exchange opened in Amsterdam in 1602 by the Verenigde Oostindische Compagnie or the Dutch East India Company as we know it. And this practice of appeasing to shareholders by almost any means possible still continues in the modern era.
Take Xerox’s cut of 10,000 workers in 1993. The CEO at the time justified the layoffs as necessary “to compete effectively” and to have a “lean and flexible organization which can deliver the most cost-effective document processing products and services.”
But is this model of shareholder value over all else still applicable today and into the future?
However today, in a culture where brands are judged by their social and political views more so than their products and services, can companies really afford to put their shareholders ahead of their employees and customers? Or can’t the needs of all stakeholders; shareholders, customers and employees, be met in a mutually beneficial manner?
In a fiercely competitive business world where brands are competing on customer satisfaction, failing to connect and build experiences with your customers is akin to falling before you’ve got off the mark. In addition, the war for talent has been identified as major inhibitor for companies, especially those looking to reimagine their business into a digital organization. And of course, companies can’t neglect the very people or organizations that made their business possible in the first place, the shareholders.
Therefore, in order to be successful in the long term, especially in today’s environment, organizations are looking at prioritising all three groups, or all stakeholders. This will of course be different for different organizations and industries, and finding the perfect balance isn’t always possible.
But this balance of stakeholder priority is defining organization’s culture and will ultimately lead to a more balanced and longer lasting organization. Richard Branson of Virgin Group, has always been outspoken in his endeavour to put employees first whilst still maintaining customer experience and shareholder value. Ultimately, holistically prioritising of all stakeholders will define organizational value and longevity moving forward.