Creating Shared Stakeholder Value

Unus pro omnibus, omnes pro uno

Since 1868 this Latin phrase has been considered to be the motto of Switzerland, though its place in popular culture has been solidified by its association with the heroes in Alexandre Dumas’ 1844 novel, The Three Musketeers, for its English translation is: All for one, and one for all.

It is a pledge of common help and support. Individual needs will be sacrificed for the group, and group needs will be sacrificed for the individual. Described that way, it’s almost a contradiction, an impossibility. Yet, it simply comes down to this. The individuals will seek for the benefit of the group, and the group will seek the benefits of the individuals. In cases where the balance can’t be maintained, the group will strive (at a minimum) to keep harm from the individuals.

In other words, we don’t sacrifice one group member’s needs in order to benefit a different group member.

Unfortunately, in many cases, that’s not how business works today.

Labeled “The Dumbest Idea in the World” by Steve Denning, the idea of maximizing shareholder value at the expense of all other concerns has infiltrated and dominated business thinking for nearly the last 40 years. While some of the tenets of this argument can be traced all the way back to the infamous East India Company of a bygone era, the modern renaissance of the idea can be traced to a New York Times article dated September 13, 1970. The author was none other than Economic Nobel Prize winner Milton Friedman.

The article, entitled The Social Responsibility of Business is to Increase its Profits, starts off with this gem of a first paragraph:

… The businessmen believe that they are defending free enterprise when they declaim that business is not concerned “merely” with profit but also with promoting desirable “social” ends; that business has a “social conscience” and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. In fact they are—or would be if they or anyone else took them seriously—preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.

Wow! I’m stunned on so many different levels.

This line of thought—that business were, by their very nature, not constrained by responsibility or citizenship, and were merely a conveyance for making money—gained a foothold in the minds of many, becoming the prevailing school of thought for business education starting in the early 19980’s. Feeding the greed and ambitions of many business executives and managers, it laid the foundation for the economic crises in 2008.

It’s also done immense damage socially and environmentally, as the unrelenting drive for larger and consistent profits at the expense of all else has left a devestating wake in its path—most notably broken lives, broken families and broken environments.

Again, as I’ve stated before, money is not the problem, nor is the pursuit thereof necessarily a problem. It all comes down to how we do it.

If big business is on the side of society it can have amazing positive impact and consequences. Alignment. #CC2015

— Conscious Capitalism (@ConsciousCap) April 7, 2015

Luckily, there appears to be a change in the wind. Many of top business thinkers are moving away from this insidious idea that has affected the thoughts and actions of so many.

Many are now looking beyond just the shareholder to the wider scope of stakeholders in an attempt to build not only strong returns, but a vibrant, supportive ecosystem within which the company can grow and thrive. Other stake holders include customers, employees, suppliers, partners, the community and the environment.

This approach doesn’t attempt to simply throw shareholders out into the cold. It’s not a socialist plot. They are important, just as are each of the other stakeholders, though they (as with each of the others) need to be kept within proper perspective.

This approach to business believes through creating shared value, the actual value to each group (including the shareholders) will be greater than in the case where only one stakeholder is considered.

We need to move from maximizing shareholder value to maximizing shared value. ~ @Mightybytes at #CC2015

— Trev Harmon (@trev_harmon) April 8, 2015

This approach creates a virtuous cycle, where each shareholder group can reinforce the others. For example, happy and healthy employees have a higher engagement rate, which leads to better productivity, lower turnover and better customer service. Better customer service leads to happier customers, more sales, fewer customer issues and more social and word-of-mouth marketing. Happier customers (and the related results) lead to higher profits. Higher profits benefit shareholders and are also used to support the employees and their welfare.

This is just one of many virtuous cycles that comes into existence with proper nurturing. And, paradoxical to some, over the long term, shareholders will realize much more value from such an approach.

Take a few minutes and listen to John Mackey explain some of these topics from the Consiocus Capitalism perspective.

We are all together here on spaceship Earth. We are all in this together. Just as the world is an interconnected ecosystem, so should our businesses and organizations also be intereconnected ecosystems. There is plenty of value to go around. As it’s not a zero-sum game, all can benefit.

Banner photo courtesy of Steven Depolo (CC-BY-2.0).