Shareholders vs. Stakeholders: Skipping Steps Is Costly

Some of the secret joys of living are not found by rushing from point A to point B, but by inventing some imaginary letters along the way.

~ Douglas Pagels

Today’s Friday Food for Thought is based on a recent article from The Economist that discussed the waning popularity of shareholder capitalism as advanced by Jack Welch and others. In this model of capitalism, “a firm’s sole aim should be maximizing returns to its shareholders”. This brand of capitalism has dominated the business landscape for the past 25 years or so.

Stakeholder capitalism, by contrast, is more concerned with the needs of customers, employees, suppliers, and society at large. Roger Martin, dean of the University of Toronto’s Rotman School of Management, thinks that shareholder capitalism is “tragically flawed” and that “it is time we abandoned it”. In its stead, he proposes that we should embrace customer-driven capitalism, where customer satisfaction is the primary goal of a business. (I recently wrote about Capitalism’s 3 Children, where I described the tension between various capitalist participants.)

Customers Matter: D’Ya Think?

Having read the distinction between shareholder capitalism and customer-driven capitalism, most consumers would likely respond “Well duh. Of course customers should come first.” I’m sure most of us can relate to the sentiments of Mr. Cheap from Four Pillars. He wrote about his experience with poor customer service in The True Cost of Rudeness.

Intuitively, it just seems to make sense for any business to offer the very best experience they can to their customers. Happy customers come back. Happy customers are often willing to pay a little more for superior products and service. Why wouldn’t this become the modus operandi for every firm?

In the end, a business that treats its stakeholders well will be successful, and shareholders will inevitably benefit as well. In my view, that’s how capitalism is supposed to work. Right now, our economic system faces so many problems that many are asking Is Capitalism Broken? Would we have experienced the financial crisis if we had been practicing stakeholder capitalism rather than shareholder capitalism? Did the drive for profits cause us to stray from the basics of sound business practices and take on more risk than we should have?

Confusing the End with the Means

It seems to me that, by pursuing shareholder capitalism, we’ve been trying to skip to the end without regard for the means. We put profits for shareholders above everything else and forgot that we’re actually supposed to be providing useful products and services. Trying to achieve end goals faster by cutting corners and skipping steps is a proven recipe for catastrophe. (The same applies to personal finance. As discussed in Your Financial Hierarchy of Needs, it makes no sense to put a lot of money or effort into investments if you aren’t earning a decent income, budgeting and saving first.)

It seems like this quick fix approach has permeated almost every aspect of our society. We want to skip to the end without going through the process. Many of us are like channel surfing couch potatoes that breeze through life, sampling hundreds of programs, catching bits and pieces of each and thoroughly enjoying none. We spin through our iTunes looking for just the right song. No one cares to savour an album anymore (except for my 14-year-old 70s-throwback son). If we want to offer our family some cookies for dessert, we either open a bag or cut up a roll of dough from the freezer.

We have outsourced many parts of our lives in the interest of achieving more faster. We need to skip to the end. We hire people to clean our homes, and care for our lawns, our cars and even our children. We are inundated by communication via cell phone, email, twitter, facebook, linkedin, and hundreds of other social networking applications, but we rarely have time for a face to face, heart to heart talk with those who matter to us.

Skipping to the End

This skip to the end, race to the finish, “I’ll get there before you by any means necessary” carcinogen pervades our society. Do we know what we’re racing toward? Life’s finish line is death. I doubt many of us are in a hurry to get there. So what is it? What’s the end?

Maybe we feel like if we work hard enough, fast enough and smart enough, we’ll have time to tend to our garden, bake some cookies, or play with our kids. The end is peace, contentment, and being able to do the things we love. Isn’t it ironic that, by trying to skip to the end, we actually seem to be pushing it further away?

Perhaps the answer to this dilemma, like so many others, lies in the balance. There’s nothing wrong with cutting corners to gain efficiency here and there. But if we take the short cut every time, we can miss out on a lot. If you whip out the Pillsbury cookie dough for that bake sale so that you’ll have time to read to your daughter that night, make sure you do it. Don’t use that time to catch up on laundry or reading for work. It can wait.

I’ve been known to open a box of frozen pizza or two in my time. We’re on a first name basis with 4 or 5  pizza restaurants in our area. But there are also those times when I’ll take a Saturday afternoon and make pizza from scratch. (Yeah. We eat a lot of pizza at my house – three boys aged 11 and almost 15 and it’s the only thing everyone loves. ;))

Hidden Treasures

The aim of capitalism should be pleasing customers, employees and suppliers first. If we can do that, the profits will come. If we can find a balance between work and play, and efficiencies and experiences, peace and contentment will come. Taking a break is a great investment. Balance is the means to the end.

The journey from A to B can be fraught with challenges or boredom, but you can often find hidden treasures along the way too. Sometimes the experience we gain on the journey is just what we need to make it to the next step. How many times have you been in the process of completing some mundane task and learned something that could really help you in the future? Have you ever been struck by a life-altering epiphany while playing with your children or folding the laundry? When we skip to the end, we miss the journey – and that’s usually the best part.

What do you think? Should the shareholder or the stakeholder come first? What hidden treasures have you discovered by taking things one step at a time?


Written by Kim Petch

2 Responses to Shareholders vs. Stakeholders: Skipping Steps Is Costly

  1. Paul says:

    The ponzi forces of the global financial community and the $605 trillion USD worth of outstanding global derivatives disagree with you. There is no turning back…the bonuses need to continue being scurried away into some safe offshore shelter before the party’s over for good.

    • 2 Cents says:

      Yes. Unfortunately, those of us who didn’t get invitations to the party will be the ones to clean it up. The derivatives time bomb is what makes the sovereign debt issue more dangerous and I’m afraid none of our fearless leaders has been able to assemble much of a bomb squad. Thanks for visiting!

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