Who do we serve? Shareholders or Employees?

Can business succeed if it takes its eye off the investors?

The Business Roundtable signed a significant statement last week going against their standing from 1997. This group of 193 CEOs from the biggest companies like Amazon, Wal-Mart, GE, Apple, Chevron, Goldman Sachs and Oracle has held for decades that corporations exist to maximize shareholder value. Shareholders routinely sue and win against CEOs and corporations for putting others ahead of them.

181 members signed a statement last week adding 4 more groups of stakeholders to investors. They added Customers, Employees, Suppliers and Communities to Shareholders with no apparent hierarchy. The reaction was mixed at best. The Roundtable got applause by those who support big companies that already serve this wide group of stakeholders. Starbucks and Patagonia went “against the grain” a long time ago when they instituted programs to educate employees and create a sustainable business while minimizing negative impacts on the environment. These are just two examples of organizations that care about more than shareholders. Not everyone was clapping.

The Council of Institutional Investors immediately issued a statement condemning the addition of new groups to the fiduciary responsibility of corporate boards. We should note that the Council has some of the same member corporations as the Business Roundtable. It’s complicated. The council stated “If ‘stakeholder governance’ and ‘sustainability’ become hiding places for poor management, or for stalling needed change, the economy more generally will lose out.” Another interesting sentence from their statement says that “Accountability to everyone means accountability to no one.” In defense of the Council, they are responsible for over $4 trillion in pension funds and their responsibility to beneficiaries of these funds won’t change any time soon. This raises an interesting question.

Do we have to call out other stakeholders, beyond investors, to have a sustainable and successful business? When a business does a good job of diagnosing talent status and strategy, designing the right system with culture, hiring right and inspiring the workforce they should have the best chance for success. If there is a need for the product, optimized talent, as described here, is a competitive advantage. A good product with the right people behind it should produce the best ROI for all involved. Is focusing solely on investors reckless?

I worked for a hospitality company right out of college that shouted from the rooftops how the company had enjoyed over 130 quarters of increasing dividends for shareholders. There wasn’t much formal attention focused on the workforce. I appreciated my stock grant and moved that money into a different investment class. Dividends cannot increase forever. The CFO of that company passed away suddenly and those climbing dividends stopped along with company growth. The stock price, today, is about 5% of where it once perched, and the company is less about 1/3rd  the size compared to its peak. This corporation aimed to satisfy shareholders above all else. Fail. Who else suffered? Employees and communities were hurt by abandoned real estate, suppliers shrank their sales into fewer outlets, and customers had less choices when spending their dining dollars. Failures 2, 3, 4 & 5. What’s the answer?

Whether we call it out or not, it’s critical that we manage all the stakeholders in our organizations. We cannot survive (in the long-term) without customers, employees, suppliers, community and investors. One of the biggest line items on financials is our people. If we optimize this talent by getting the right people into the right roles where they can succeed and inspire them-everyone wins. A joint study by the Conference Board, Deloitte, and others tells us that “disengaged employees cost US companies $550 billion a year” Ouch. Engaged employees are good for customers, communities and sustainable growth and profit for investors. Our employees can be the competitive advantage that keeps us profitable. Optimize your talent now!