Today’s corporations work off the premise identified by Milton Friedman in his Shareholder Theory. This is the premise that the only responsibility of managers is to serve in the best possible way, the interest of the shareholder, using the resource of the corporation to increase the wealth of the shareholder by seeking profits. This is of course a valid principle, after all, without profits, there is no business long term.
But we feel it only tells part of the story. And we are not alone.
We were encouraged to read the recent article in The Times by Gurpreet Narwan on the 3rd of June about the shift of business priorities, from focussing on driving profits for shareholders to having a social purpose with goals aligned with more meaningful values to guide a company’s mission. The stance taken by the Institute of Directors that companies need to balance the needs of shareholders and behave more responsibly when it comes to the climate change emergency, the well-being of staff, communities and customers is, in our view, a positive step change to be embraced and celebrated.
Finding the Balance
For us, it’s always been about balance. It’s why we’re a B Corporation company. We believe there is a way for businesses to perform at these high levels, providing shareholders with appropriate levels of return but also being an unwavering force for good. Delivering profit with purpose.
We believe it’s important, but not always possible in the case of publicly listed companies, that shareholders should be aligned with the values and purpose of the companies they’re investing in to be able to create truly brilliant businesses that play their part in supporting society, their people, the planet and customers as well as the organisation. This should also be the case for shareholders who invest in companies and must be a key consideration for both parties when looking for investment, thereby creating a fundamental reallocation of capital. Indeed some of the major global property funds now regard threats to the environment as a key investment risk.
Time for change
Refreshingly the IOD is supporting the campaign to amend section 172 of the Companies Act 2006 so companies will be legally obligated to operate in a manner that provides benefits to workers, customers, communities and the environment whilst seeking to deliver profits for shareholders. We fully endorse and support this way of thinking and direction of travel and would urge like-minded businesses to get behind this campaign to drive change. A business that considers benefits outside of the typical shareholder structure and operates with purposeful goals is a force for good that benefits everyone.
We expect progressive investors and shareholders will have a shared sense of responsibility and recognition of the need for change.
For the past thirteen years, we have tried to take this holistic view on impact and reward through our Live Well Manifesto. In fact, we have changed our governance so that we are legally obliged to. And as we scale it is ever more important to monitor and mitigate the impact we have on all our stakeholders. Milton Friedman’s Shareholder theory will be replaced with Stakeholder theory and we encourage our peers to lead the way by making the change to their governance accordingly.
Joseph Rajah
CEO
