SHAREHOLDER VS. STAKEHOLDER VALUE
During my graduate course this past week, I was introduced to two different perspectives on. Business: shareholder theory and stakeholder theory. This is an extremely interesting topic that will take a great deal of reflection, research, and analysis. Taking a look around, every country has its own method of doing business. The interesting thing I’ve observed is that when it comes to either theory, society tends to go to extremes. Either you are all in for one side, or you are all in for the other. There isn’t much room for the middle ground. I found it even more interesting that the United States tends to utilize shareholder preference as a way to do business, whereas society is moving towards stakeholder preference.
People who aren’t familiar with either theory may say that shareholder theory mainly revolves around making a company’s shareholders more profitable. In stakeholder theory, money is redirected to benefit the many stakeholders of a business. I find the Stakeholder Theory to be particularly useful because it acknowledges shareholders while simultaneously drawing attention to all other internal and external stakeholders. Despite that fact, I do not believe that the application of this theory is superior to that of the current shareholder theory. But I strongly believe that Shareholder theory, as originally intended, is incomplete and that Stakeholder theory completes that full-circle perspective.
It has been enlightening for me to hear many different opinions from my classmates, as there are both pros and cons to both sides. It is easy to see why a profit over people model has existed, and I can see the opposite end of the spectrum where questions are raised about how profits are generated and whether businesses are doing everything they can to address community issues. I am not advocating the abandonment of all profit-gaining projects, as such a step would be irresponsible. It would be worthwhile to examine how a business is doing “business” in terms of its most basic activities.
We were asked to watch a video from a presentation conducted by Jeff Duzar that sparked this conversation. Here’s the link to the video. I hope Christian business leaders will take some time to watch this video. Jeff does a great job of framing the discussion from a Biblical perspective while also bringing up points that those in secular business should consider. In the dynamic environment in which we live, it is vital to be asking these kinds of questions as society continues to develop.
I agree with Jeff that a serious conversation surrounds the theology of business for the basic things we do in business. Jeff’s explanation of the unfortunate “stuck in the middle” situation most people find themselves in makes sense to me. In the end, it comes down to how business is understood in the framework of society and from a cultural perspective how we define value. It is hard for Americans in business, especially small businesses, to think about anything other than profits. While you can give back to the community when you can, an SME’s worldview is dominated by just staying afloat. In larger organizations, the culture of constantly chasing financial resources from shareholders and meeting their demands is no less prevalent. Anyone who is in the thick of it knows the situation much better than anyone outside of it. Nonetheless, the hope of upward mobility and living wages that are set by these companies are not less than real to the employees who work for them.
This is where stakeholder value and stakeholder theory find many more proponents and supporters. The lifeblood of every business organization is its employees. If they do not have the ability to work for something, it is unlikely that they will stay productive and continue to feed the business activities that shareholders need to generate profits. Today’s complex world has concerns that weren’t prominent a decade ago. For many people, that much-needed education remains out of reach due to rising costs of living, wages that simply aren’t sufficient, and ensuring a quality of life. There is no truth to the narrative that those who want more are too lazy to get it. These barriers have been created socially in a way that continues to support shareholder theory supporters.
Political leaders cannot control this situation. No matter which side you’re on, they aren’t helping. Business leaders should understand that they are the true third party that stands in the gap and can speak on behalf of those who need to be heard.