25 Oct 2011

“You’ve got value, but I’ve got values”

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Clashing philosophies : shareholder value vs. stakeholder value”

I attended a conference titled “Clashing philosophies : shareholder value vs. stakeholder value” in Luxembourg. That’s the sort of topic I like much …

What made this conference very exciting was the confrontation between two quite opposite academic views about shareholders claims in business.

It started with a depicting picture of the shareholder maximization by a professor of finance at INSEAD, with some assertions like : “stakeholder value tends to cut the shareholder one” or “stakeholder value maximization is an excuse for bad decision” or again “pursuing other objectives (than profit maximization, would I presume) without telling shareholders in advance is unethical”. It was even made some allusion to the fact that stakeholders claimed something unrealistic : “Heaven is far away, value is close to us”.

Colin P. Mayer, Professor of Management Studies at Saïd Business School, University of Oxford took over with a very constructive statement of the ethical and economic imperative for the firm. He outlines that society does change and the behaviour of the shareholders should change also and adapt accordingly. The question is : “what is an acceptable behaviour ?” It shall take shape under a form of “mechanism being able to incorporate broader stakeholder value”.
Colin P. Mayer does not disregard that shareholder value need to be protected in order the company to survive, but it is any longer to the State to take on the role to correct externalities from companies. He concludes by saying :

  • we need to “compel the logic of fiduciary duty of conduct for stakeholder, not shareholder value
  • it is “reinforced by economic efficiency considerations” (e.g. if workers are detached, the productivity and innovation will go down)
  • but “conduct is insufficient. It is also concerned about outcomes”
  • reputational effects can be perverse” (image must be backed by concrete actions)
  • “corporate values have to be broader than shareholder value
  • shareholder not stakeholder value is difficult to measure

Last but not least, he stated that “shareholder value is a dogma“. It does not match with a logical necessity whereas it does with stakeholder value. The reason why shareholder value overwhelms stakeholder one is twofold : 1. the logical fallacies (such as “stakeholder value is reflected in the firm specific commitments”) ; 2. the self-interest.
He summed up this by saying : “you (shareholder) have got value, but I (stakeholder) have got the values”.

The academic part was followed by a discussion’s panel including two high executives from the corporate sector : Cargolux and ArcelorMittal. One of them admitted that stakeholder claims are seen as a constraint, like taxes. What makes them difficult to manage is that there is no official framework to measure achievements and how deep companies integrate themselves in the society. The other executive gave concrete examples of efforts made in order to comply with social and environmental challenges like climate change. He explained how difficult is it to behave with responsibility, because it means supporting higher operating costs … and transferring them as much as possible to the clients (considering that stakeholder value is a collective involvement). In both examples, corporate social responsibility is an undisputed subject.

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