Stakeholder vs. Shareholder value generation

Although publicly the debate within private sector ‘for profit’ organisations as to whether they should focus exclusively on generating shareholder value or on generating value for all their key stakeholder groups does not seem to feature much these days,  I wonder sometimes as to whether that lack of debate is due to everyone signing up to the stakeholder value concept  or not.  It would be quite difficult to find many CEOs today who would stand up in public and expressly support the words of the eminent economist Milton Friedman:

“[The] one and only social responsibility of business [is] to increase profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.

But many may privately think this, and recent scandals in, for example, the banking world, appear to confirm this.

Of course directors of companies are primarily accountable to their shareholders, so doesn’t  it stand to reason that a, if not the, primary objective of a business is to maximise profits?  But is that the whole story?  Is the answer to Charles Handy’s famous question “What’s a company for?”, simply to maximise shareholder value?  Some might wish it were that ‘simple’ but most accept that it is not.

An increasing number of companies recognise that creating stakeholder value supports the creation of shareholder value,  and seek to put that recognition into practice through the things that they do, and in particular in their business strategy.  For anyone interested there are numerous case studies available and one of the best sources of these is the The Times 100 Business Case Studies.  Visit http://businesscasestudies.co.uk/case-studies/by-topic/  and select “Stakeholders” under the “Strategy” category.  You will find many interesting and eminently readable case studies there. Happy reading!