Pulp and Paper Canada

Shareholder Value at a Crossroads: The emergence of new values

October 1, 2001  By Pulp & Paper Canada

The radical notion that a business should exist to increase its value for stockholders swept the corporate world in the 1980s. These days may be numbered, according to management consultant Allan Kenn…

The radical notion that a business should exist to increase its value for stockholders swept the corporate world in the 1980s. These days may be numbered, according to management consultant Allan Kennedy, author of The End of Shareholder Value. The main thesis derives from the narrowness of the view that shareholders are the only important stakeholders; it ignores employees, customers, suppliers, community and

many more. Furthermore, the reward system is biased toward short-term profits as opposed to long-term interests of the company and all those that have a stake in it. A new credo is emerging where social values make an increasing contribution to “corporate value”, a notion that is beginning to be reflected in the stock values.


Kennedy believes that those who have been victimized by the shareholder ethic will emerge as a force, driving businesses to rethink their values and focus on the long-term. The armies of employees laid off over the past 12 months might be a start, but this movement had already begun with the rise in ethical values in society. This has created strong growth in so-called ethical mutual funds. Stock values are punished when poor practices leak out, be it child labour, genetically-modified foods, animal welfare, employment practices or environmental policies. The demanding consumer is in charge and driving change. The new Gen-Y consumer and employee have strong ethical standards and are less motivated by material values. Anti-globalization demonstrations are also a high-profile reminder that change is in the air.

Trends to be expected: Suppliers may join forces to rebel against severe pricing concessions in return for long-term contracts. Customers will increasingly form coalitions for affirmative actions. Corporations have adopted triple bottom line annual reporting: what we did for the shareholder; what we did for the environment under our stewardship; what we are doing for the planet.

What replaces shareholder value? Kennedy proposes the ethic of building and sharing wealth. For example, rather than enhancing the bottom line in the near-term by cutting out research and downsizing workers, companies might choose to do the exact opposite: growing their intellectual capital. Among the new “marching orders” Kennedy recommends:

Define the real purpose of your enterprise and rethink how to measure its achievements. Creating and building wealth includes enhancing technological advantage, consumer loyalty, and employee commitment.

Invest in reinvigorating the corporation’s future. This could mean anything from spending more on R&D to improving customer satisfaction.

Reconnect with the important communities. Corporate downsizing and plant closures do much damage to communities and there is much ground to make up. Companies could invest in retraining programs and facilitating the rebirth of the community with some alternate economic base.

Boards should include representatives from the major stakeholder groups such as suppliers, communities, customers and employees.

A starting point for coming to grips with these issues is the development of a “Stakeholder Map.” This tool answers the critical stakeholder questions: Who are the stakeholders? How are they connected? How influential are they? What are their values? In the Stakeholder Field diagram, three fields are identified for internal, economic and global stakeholders. The three stakeholders identified might be the “shareholder value” view for stakeholders. The second diagram indicates a much richer mix of stakeholders (only a few are indicated, and, in fact, many organizations will identify over 40 for their Stakeholder Map). From this starting point, Connections, Influence, and Values can then be identified, scaled and displayed on appropriate diagrams.

Why is this important?

According to some experts, the obsession with share prices may leave companies vulnerable in the future. The current economic downturn may represent a definitive transition or trend break from shareholder value to more holistic value themes. The important action is for companies to get in tune with stakeholders and define their relationships. Moreover, this process should not be a one-time event but a continuing process for a regular corporate health check-up. Tools are available to facilitate this process; contact the author for more information. “Not everything counts that can be counted…..and not everything that can be counted counts”: Albert Einstein.

Alan R. Procter can be reached at futureviews@alanprocter.com. For more information, visit www.futureviews.net

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