Shareholder and Stakeholder Value

What is stakeholder value, and is it more important than shareholder value?

While my knee-jerk reaction is to write, "it depends on who you ask," I believe a case can be made that stakeholder value is more important than shareholder value. First, stakeholder value is the utility derived from those people, governments, and organizations that a corporation touches. An example, Exxon produces fossil fuels that harm the environment. The stakeholders of Exxon are the entire globe. Exxon's value is harmful to most stakeholders over time because fossil fuels negatively impact our climate crisis.

Economist Milton Friedman coined "shareholder theory," which states that the only duty of a corporation is to maximize profits. He theorized that in doing so, the economy would naturally prosper. This theory was widely accepted and fueled so much malarkey to follow, specifically in the 1980s, with the ideology still existing today. We've witnessed that profit maximization leads to an increasing wage gap and more poverty within the U.S. Friedman most likely underestimated, or simply ignored, the human component of his theory. This was common among economists, as the consideration that humans act based on emotions rather than logic was not considered until the emergence of behavioral economics.

All this detail to conclude that shareholder value only impacts those who can profit directly from the corporation. In contrast, stakeholder value, by definition, affects not only more people but can impact governments, industries, and sometimes even the planet. I may be utilitarian or idealistic on this topic, but the financial gains of a few are not as important as stakeholder value. Organizations should aim to align stakeholder value with shareholder value. This alignment would create a win-win scenario.

What is the role of business in society? Has this changed over the years?

The role of business in society is as significant as the company wants to make it. We have a lot of freedoms within the U.S., and there are minimal regulations on how involved corporations should be with societal issues.

Some companies' competitive advantage is their stance on specific issues in society. When they make social stances, the market begins to expect other organizations to follow suit. It is much like when a novel product hits the market. Before competition enters the market with a similar product, there is a competitive advantage. When competition enters, discounts are provided. This begins to deteriorate the life cycle of a product until it becomes a commodity. We have commoditized the social opinions of businesses. I am not sharing that this is either a positive or negative- it's just an observation. I am a consumer who will avoid making financial transactions with companies I know don't align with specific topics that are important to me. However, if I never knew the organization's stance on topics, having a concern would never cross my mind. The internet created this new environment we are in, and many businesses have been forced to adapt.