Question

A group of the nation’s most powerful chief executives abandoned the idea that companies must maximize profits for shareholders. Instead, they agreed to deliver value to "stakeholders" who do not necessarily own any shares. They believe companies should commit to balancing the needs of shareholders with customers, employees, suppliers, and local communities. The statement can be found here: https://opportunity.businessroundtable.org/ourcommitment/

What are some thoughts about this new statement? A federal financial regulator sees the Roundtable heading to a “very dangerous place,” which will invite outside groups to demand metrics having nothing to do with serving shareholders, customers, or workers. Do you think the statement would change the ways corporations conduct business? Please explain what you mean..

Answer 1

Answers

What are some thoughts about this new statement?

Answer: Some thoughts about " agree to deliver value to stakeholders" , this statement has a background and context under which it has been expressed. Let us first deal with the background before delving into its thoughts.

Background

This state was made in the Business Roundtable, Business Roundtable is non profit association based in Washington DC and from 1978, it has periodically issued Principles of Corporate Governance.

This statement basically acknowledges that apart from shareholders, every stakeholders have some value in the corporate and for delivering or materializing such values many activities need to be undertaken.

Context

It is due to creation of value amongst its stakeholders such issue of stakeholders' compliance is required. Now the key question is what is stakeholders?

Stakeholders is the persons or firms whom are  associated with the firm's operational and strategic objectives, legal and regulatory requirements or achieving the organisational needs.

Stakeholders can be divided into two parts,

• Internal Stakeholders, which consists of employees whether top, middle or operational level, group of experts, KMPs etc.
• External Stakeholders , which consists of supplier, society, government, creditors both operational and financial, customers apart from shareholders.

Thoughts

One of the key methods of delivering Value to various Stakeholders is the Balance Scorecard Approach , developed by Kaplan & Norton, where it stresses the point of learning and growth of employees by improving training, conducting workshops etc,thereby sharpening the skills of employees.

Understanding the principal suppliers and considering whether to outsource or self create and at which avenue the company can excel is also one the contributing factor for delivering value to stakeholders.

The understanding the needs of customers and compliance with laws and regulations, timely payments of debts, dues or any statutory obligation will also create goodwill and value creation among its stakeholders.

Federal regulator's concern

The contention of federal stakeholders is not tenable as the stakeholders does not mean any outsiders, as it was explained earlier. Hence, outside groups will demand metrics which will have nothing to do with serving shareholders, customers, or workers does not arises. As far as outside group demand metrics is concern, the corporate should have effective risk management committee or vigilance committee to monitor such external non stakeholder concerns.

Changing the conduct of business

Statement will change the way the company will conduct business as apart from profit and wealth maximization, value creation, identifying deliverable to its suppliers and consumers and creating far greater internal control and risk assessment process will be the new norm for conducting such business practices and prudent commercial policies.