Karl Moore – This is Karl Moore of the Desautels Faculty of Management at McGill University, Talking Management for the Globe & Mail. Today I am speaking to Mike Barnett who is a professor at the SAID Business School at Oxford University.
Good afternoon, Mike.
Mike Barnett – Good afternoon, Karl. Thanks for inviting me here; it’s a pleasure to be here.
KM – Who are the stakeholders in an organization? Clearly the people who own the company but who are the other key stakeholders of an organization?
MB – The definition of stakeholders is one of those large can of worms that has been defined many ways – direct stakeholders, indirect stakeholders, moral stakeholders. Of course the traditional view is that they are the ones who are the shareholders but the stakeholders broadens that concept to include the customers, members of the community, employees, and just about anyone who can effect the firm or are affected by the firms actions.
KM – So Mike, if I understand what you are saying is that in the past the shareholders were almost the sole arbitrator of the share, along with the market obviously, but now you are saying that the share price is going to be influenced by a wide number of people – the stakeholders. How do the stakeholders influence share price?
MB – Shareholders have always been the most visible face of the share price of the company but in recent years there has been recognition that the share price is influenced by other groups that provide the inputs and buy the outputs of the company. Effectively, share owners are trying to predict if corporate actions are going to lead more people to buy the goods, if consumers are going to pay more or see it as a differentiated good that they might pay a premium for, if employees are going to be willing to work for the firm or leave the firm more quickly or attract a less quality workforce, or if partners are going to be willing to work for the firm or flee them because they don’t want to be associated with that particular firm because of it’s stance on social issues and so forth.
KM – It suggests that C-suites should be more focused on, even if they want the share price as a key metric, you should be more aware of employees, customers, suppliers, and communities in order to get the share price up or to protect it from the downside. What are the kinds of actions they should take?
MB – It has just become much more complicated to do business nowadays in terms of having to consider not just the immediate short-term share price of the company but consider the long-term impacts of the decisions today on other stakeholders that can come to impact the firm. So it is sort of a complicated joint maximization across quite a few categories. You can start to see some of these impacts in more intermediate measures like reputation so you can monitor employee satisfaction, customer satisfaction, and other things other than the immediate financial return. There are things that you can do – social responsibility, in a lot of ways, is like advertising or Research and Development. There are costs now but if you make those expenses you are going to decrease your financial performance but had you not made them then down the road you won’t get the returns from them that are necessary for long-term financial performance maximization.