Why shareholders and stakeholders are not mutually exclusive

Whether a company should be shareholder- or stakeholder-focused is a popular discussion for business analysts and leaders alike. Some believe it is more important to put profit – and thus shareholders –?front and center, while others think that employees, customers, and the local community – which together make up stakeholders –?deserve more attention.?

In reality, a focus on shareholders and stakeholders does not have to be mutually exclusive. We can instead strive to operate in ways that create value for both.?

Defining shareholders and stakeholders?

A stakeholder is anyone who is impacted by a company or organization's decisions, regardless of whether they have ownership in that company. Shareholders, on the other hand, are those who have partial ownership of a company because they have bought stock in it.?

All shareholders are stakeholders, but not all stakeholders are shareholders. Whereas shareholders have a financial interest in a company, stakeholders are driven by a wider range of concerns.?

For example, stakeholders include anyone affected by the company’s environmental and social (ESG) decisions. This may be local, such as a company’s contribution to the local community, or global, with an example being a company’s pollution targets.?

Shareholder vs stakeholder focus?

In 1970, American economist Milton Friedman famously wrote that the social responsibility of business is to increase its profits. This approach, which puts profit above all, was aimed at benefiting shareholders. It later became known as the Friedman Doctrine.?

However, in 1984, R. Edward Freeman published his book “Strategic Management: A Stakeholder Approach,” which argued that an organization should not only satisfy its shareholders, but also those who are impacted by the decisions of an organization – meaning its stakeholders, such as employees, customers, and the local community, even if it reduces shareholder returns.?

But these interests do not have to be mutually exclusive. While it is true that the ultimate goal of any business is to maximize shareholder value, considering stakeholders’ interests is a way to achieve that.?

As companies respond to their stakeholders, implement ethical practices, incorporate sustainability in their strategies, and practice strategic philanthropy, they can simultaneously create economic and social value.?

There will certainly be cases where shareholders and management are pursuing short-term profit that conflicts with the interests of stakeholders. However, when a company takes advantage of employees, customers, suppliers – or negatively impacts the community or environment –?it will ultimately see its financial performance decline.?

Creating long-term shareholder value with stakeholder support?

The best way to create long-term shareholder value is to execute a business model that complies with laws and regulation, and also results in happy customers, committed employees, and community support.?

It’s true that we see a lot of effort to protect stakeholders through legislation. But a company’s most important stakeholders –?its customers –will ultimately make an impact through their buying behavior. If a company fails to consider them, it will not survive.?

This means shareholder and stakeholder interests are not mutually exclusive. We must instead find the right balance between the two, so that they can strengthen one another.?

That is how we can deliver sustainable business growth.

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