IntheBlack, February 2016
Read it on the magazine’s web site here:
Is the model that defines modern investment and management broken? For decades, the management of listed companies, and the investors who buy their stock, have believed devotedly in the model of shareholder primacy, representing shareholders above all others. But there is a mounting chorus suggesting that this is an unsustainable way of thinking, and that management has to act in the interests of all stakeholders for the greater good.
On one side of this debate is the fact that a company that is working for shareholders is, in a sense, working for everyone. “Society and investors have a commonality of interests – it is in no one’s interests for our corporations to fail,” says the Governance Institute’s discussion paper on Shareholder Primacy.
This point of view is reinforced by the fact that, increasingly, we are all shareholders: not necessarily directly (although Australia boasts one of the highest rates of direct share ownership in the world), but through pensions, particularly in Australia where the Superannuation Guarantee has created one of the world’s largest pools of institutional wealth. All working Australians, therefore, are shareholders.
The problem is, there’s been a growing sense that the model of shareholder primacy is not the complete answer. At the corporate level, in quarterly reporting jurisdictions like the US in particular, are companies properly planning for the long term when always required to keep shareholders happy from one quarter to the next? Ask any of the last few Qantas chief executives if they think their job, running a company with frequent reporting to shareholders, is comparable to that of the executives at unlisted Emirates, who can plan ahead for an entire generation of aircraft without worrying about how it might affect the half-year numbers.
At the employee level, should shareholder rights supercede theirs? And at the level of the broader community, does shareholder primacy really coincide with the interests of all stakeholders, from customers to workers to the environment? And if not, whose problem is that?