Business Discussion: Details in Instructions
In August, 2019, a group of nearly 200 of the American’s most powerful chief executives abandoned the idea that companies must maximize shareholders’ profits. 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. Their statement can be found here: https://opportunity.businessroundtable.org/ourcommitment/
Despite the trying times, WSJ published an article this August argued that such effort is flourishing (please see the article” How’s the CEO’ Stakeholder Pledge’ Working Out? Depends on Who You Ask” in the week1 folder). In a televised interview on 8/25/2020, Salesforce Chief Executive Marc Benioff called the company’s strong earnings “a victory for stakeholder capitalism.” A signatory to the pledge, Mr. Benioff said,” We did a great job for our shareholders this quarter, but we also did a great job for our stakeholders.” After the interview, the company notified staff of plans for around 1,000 layoffs, which contradicted Mr. Benioff’s no-layoff pledge in March on Twitter and the challenge to other CEOs to follow his lead.
So, what exactly does he mean by “stakeholders”? Employees? Customers? Vendors? Communities in which Salesforce does business? The rainforest? Or all of the above? Put yourself in the shoes of a senior corporate leader. What criteria would you utilize to rank various stakeholder interests when making tough economic decisions during this pandemic? Some governance experts, investors, and academics criticize the Business Roundtable’s stakeholder pledge as being too broad and aspirational to really hold leaders accountable. Do you agree? Why or why not?
ANSWER
Business Discussion
I agree that the roundtable stakeholder’s pledges are generally too broad. As a result, I would recommend the maximizing of shareholders profits business management approach. Contrary to delivering value to non-shareholder stakeholders, the approach primarily focuses on measures that attract and retain people with investment interest in a company. The latter category may exclude employees because they lose nothing other than their jobs whenever a company falls. The same may apply to the suppliers. The promises issued are equally realistic. The failure to deliver the promises issued by the 200 of the American’s most powerful chief executives in 2009, confirms that maximizing shareholder profits is more appropriate than delivering stakeholder values. Reducing the workforce a few months after assuring all the stakeholders of the opposite would not have occurred if the senior executives had adopted maximizing the shareholder’s profits approach (“Our commitment,” 2019).
The definition of stakeholders under a roundtable strategy is equally indefinite. People who have no shares in the company fall under the category of stakeholder, despite having no investment in the company. It is due to such reasons that maximizing shareholder’s profits are deemed to be more definite and straightforward than incorporating all stakeholders into value delivery strategies. According to Ahen (2018) delivering stakeholder’s value must be prioritized, something that lacks in the roundtable stakeholder’s pledge. The actions that followed the roundtable deliberations explicitly prove the authenticity of the above argument. It is also justifiable to argue that there is little on no trust in the roundtable pledges since cost-cutting measures are mainly focused on non-shareholder stakeholders. In this case, the employees were the ones affected. Overall, roundtable pledges and broad, and only actionable under better revenue conditions.
References
Ahen, F. (2018). On value destruction, competitive disadvantage, and squandered opportunities to engage stakeholders. Engaging with Stakeholders, 283-301. doi:10.4324/9780429450341-18
Our commitment. (2019, August 19). Retrieved from https://opportunity.businessroundtable.org/ourcommitment/
