How to Reconcile Your Shareholders With Other Stakeholders

  • Paul Strebel, Didier Cossin, and Mahwesh Khan
  • July 13, 2020

Identify which stakeholders will create long-term value for shareholders — and avoid the value-destroying traps associated with others.

Image courtesy of Carlo Giambarresi/theispot.com

After many business leaders had committed decades to maximizing short-term shareholder returns, the Business Roundtable’s August 2019 Statement on the Purpose of a Corporation1 declaring that companies should serve the interests of all stakeholders — not just investors, but also customers, employees, partners, suppliers, and society at large — signaled a major shift. This change represents a key challenge, and not just for the nearly 200 CEOs of major companies who signed the Roundtable’s statement.

How are leaders supposed to manage the trade-offs between conflicting stakeholder interests? Consider, for example, the tension between the interests of short-term shareholders and the need to support a robust societal response to pandemics or other crises that can threaten a company’s business model. Those who have pursued long-term growth strategies that benefit a broad set of constituents understand that they must focus rigorously on their companies’ long-term value. Specifically, it’s important to assess which stakeholders create — and which deplete — long-term shareholder value. This enables companies to avoid value-destroying traps and develop win-win compacts with value-creating stakeholders.