The Modern CEO's conundrum - From Shareholder Primacy to Stakeholder Capitalism

This photo shows durian flower buds. On one of the limbs of my durian tree. Oh yes, I was very excited, until I learnt that 2 factors will determine whether any of these will fruit: fruit bats and warm weather at the right time. I'm the shareholder. But it is stakeholder rules at work.

A stakeholder is any entity that is affected by the company’s activities. The Business Roundtable , a lobbying group, in 2019 shared commitments that each stakeholder is essential whether employees, customers, suppliers, community or shareholders.

It is legally settled that the duties of the board and the management is owed to the shareholders, primarily. However, since the last 10 years, it is no longer the case as the law has moved on . It appears that interests of all stakeholders have to be taken into account , particularly in the UK if not elsewhere.

How much time should a CEO commit to each stakeholder? It would depend on the issue faced . Shareholders are met annually, during the usual governance cycle and the tendency is for the CEO to spend more time with the top 10 investors. The CEO needs to be attuned to shareholders so as not to lose their respect.Customers that affect the topline, should be given time to hear their views so as to be able to listen to what matters to them and to learn of new opportunities. Then there are suppliers, some are important but not big, and yet those that are big but not important. As for the community within which the company operates, at the very least it would be important for the company to be visible.

More recently, climate change issues are front and centre to investors and shareholders. Companies have to operate in a way that will help slow down climate change for a sustainable environmental future for the planet. The CEO will have to take a long term perspective which might imply that the company is no longer the lowest cost operator anymore.

Does this mean that the environment is also a stakeholder? It is important to understand the development of environmental law, as the legal system has now assumed the role of protector and advocate for the environment in many jurisdictions. The distinctive features of environmental law mean there is a wide range of stakeholders with regional differences and uncertainties around environmental harms. Does this shift the role of business to regulate externalities?

On the other hand, companies cannot be expected to expand the boundaries of their resposibilities as companies are not substitute for effective government whose role is to tax eg pollution and to provide the social safety net. In that case, how close should a company be close to another stakeholder ie the government? Governance questions might arise when business interests intersect with politics.

This is the balancing act that the modern CEO is faced with.

Location: Kuala Lumpur, Federal Territory of Kuala Lumpur, Malaysia

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