Stakeholder capitalism must find ways to keep management on account


At the outset of the Covid-19 epidemic, many assumed that stakeholder interest in capitalism would go in the opposite direction. And, companies affected by the epidemic are forced to trample on the interests of customers, employees, suppliers and society behind their walls. Run for your life Bid to survive.

Yet widely discussed Call of Larry Fink of Blackrock Companies seem to be politically motivated to engage the corporate motives of all their stakeholders. While many question whether this promise is more than a debate, there is no doubt that big business and institutional investors are under increasing pressure on the issue, with US President Joe Biden last July calling for an “end to the era of shareholder capitalism”. And the British institution that The delivery leaves the flotation Their objections to his treatment of staff last week and the dual voting structure were clearly serious.

The pressure is somehow unacceptable – see the latest CEO fired French food group Danone’s. Still Milton Friedman’s doctrine The sole purpose of the corporation is to make money from its shareholders, not just coronaviruses, but to be dissatisfied with current concerns about climate change, wage stagnation, inequality and diversity.

More fundamentally, the epidemic has shown that a shareholder primacy model of capitalism raised in the 19th century is completely unsuitable for the conditions of the twenty-first century. This model reflects the belief that the owner, the shareholder, the ultimate risk taker, was entitled to the remaining profits of the company when the claims of all other stakeholders were satisfied.

To take today’s most obvious examples, workers and patients in privately owned care homes are at an infinite risk than those out-of-home shareholders. Many skilled workers who were fired during the epidemic lost not only their jobs, but also their human capital – the skills that were specific to the firm that hired them.

At the same time corporate bankruptcy is more dangerous for suppliers than for institutional asset owners who spread risk across large, diversified portfolios. In the Anglophone economy, the short-term, narrow financial definition of shareholder value has helped reduce corporate resilience by encouraging additional dividends and share buybacks that weaken the commitment sheet.

Yet the transition to a stakeholder model raises difficult questions about how stakeholders can manage accounts. Exists Stakeholder model Include staff-managers. It prioritizes the interests of single stakeholders that may conflict with other partners. And there is a clear risk that further broadening the board’s responsibilities will reduce management accountability.

The UK provides an interesting case study. Section 172 of the 2006 Companies Act Managers need to promote the success of an organization by considering the long-term consequences of any decision, the interests of employees, the need to build business relationships with suppliers, customers and others, and the impact of the organization’s management on the environment. (Disclosure: I was on the steering group for the UK Company Law Review, which provided a blueprint for the 2006 law.)

It has been proven invalid. First, because the long-term is divided by a short-term boardroom bonus culture. Meanwhile, the pressure of capital markets and the discipline of hostile control ensure that short-term performance trumps stakeholder responsibilities, while a general stakeholder is reluctant to seek redress in court.

In order for stakeholder capitalism to work, efforts to expand the horizons during stimulus projects must be complemented by metrics related to the environmental, social, and administrative agendas. Shareholders should be given more power to control takeover activities, which do not always provide value. Existing initiatives need to be strengthened to improve reporting on value human capital, employee safety and sustainability so that shareholders can engage more effectively with firms investing in ESG issues.

But there is a limit to what boards and shareholders can do alone. Former Delaware Supreme Court Chief Justice Leo Strain backed up Modernization of the New Deal of the 1930s To protect key partners through measures such as carbs, improved consumer protection, strong incredible legislation and carbon tax in the gig economy in the 21st century economy. With a biden president in a prosperous world and a rapidly changing political climate, it may now be within possible limits.

john.plender@ft.com



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