~Society needs business and business needs society
In the economy, the private sector is generally considered the heart of wealth creation. However, many companies today now assert that they are purpose-driven; they are not only committed to maximizing shareholder value but also prioritize maximizing value for all stakeholders. Yet stakeholder value has largely faced the same fate as the Environmental, Social, and Governance (ESG) framework and Corporate Social Responsibility (CSR). If companies want to increase the stakeholder value then they need to focus mainly on 2 key trends:
- The propensity of the financial sector to invest in itself.
- Business’s priority to stock buyback
Reasons for Stakeholder Capitalism’s Stagnation: Mostly when companies aim about increasing the stakeholder value, directly or indirectly they are aiming to increase the shareholder value. However, for two reasons, those attempts fall short.
- The financial industry still makes huge investments in banking, insurance, and real estate (FIRE)
- Manufacturing and other non-financial services industries spend more on dividend payments and share buybacks than they do on human capital, machinery, and R&D.
Most people in society are at a disadvantage as a result of the combination of these two elements. The gap between those who own capital and those who don’t is continuously increasing due to the inadequate redirection of financial resources toward the real economy and labor.
So, commitment to a stakeholder’s value demands more than just words, gestures, or speeches of goodwill. To do this, the value must be defined with purpose in both businesses and governments not only this, we need inclusive funding and governance systems that encourage mission-driven investments that are not focused only on shareholder value but rather on a genuine common benefit for all.” Harvard Business Review (HBR) called it a Mission Economy- one that combines both private and public missions.
Too frequently, companies benefit from public investments in the form of loans, subsidies, bailouts, or guarantees but, these are the missed opportunities for both businesses and governments to generate collective value, and attain economic goals to contribute to society in a collective and meaningful way.
Any company can grow in the long run if they give preference to the stakeholder’s values too and discharge functions as a corporate social responsibility. The main motive of any company should be to grow with stakeholders and society at large.