The End of Shareholder Primacy – a trick question ?

Listen to our CEO discussing what he sees as a trick question.

Alex Wood, CEO of AWR Lloyd, is a strong believer in Stakeholder Capitalism, but argues that there is no other (successful) form of capitalism.

The question ‘Is it the End for Shareholder Primacy ?’ is dangerous because it implies a lack of understanding about how free market economies work (or should work). But he says, it is important to ask provocative questions, so that we can be sure we have good answers.

In a free society, a company is established by private shareholders as a voluntary and enterprising decision. Shareholders are the owners of a company. Of all a company’s stakeholders, shareholders take the greatest financial risk … If things go wrong … which they often do in business … shareholders can lose all the capital that they invest. They put their capital at risk on the understanding that they also have the potential for the greatest returns if things go well.

In a free and competitive economy, shareholders do not have any ‘primacy’ as such, in the sense of giving them any special coercive powers over other stakeholders.

For a business to be successful and generate returns, the owners of a business must develop mutually rewarding relationships with a diverse mix of stakeholders, all of whom engage voluntarily with them and their representatives.

Shareholders need the willing co-operation of stakeholders to achieve their objectives – and vice versa. A successful economy is an ecosystem of free exchange, interdependence and symbiotic co-operation. If a stakeholder simply doesn’t like a company’s methods, style or products, then they have the freedom to terminate their association with the company.

What has been happening in recent decades is that people across the world have been waking up to their rights and powers as stakeholders. They have been refusing to buy the products of companies they regard as unethical – and refusing to work for such companies. In many cases they have gone further in publicly shaming unethical practices and business models which they see as damaging to the physical environment. And they have every right to do so… If shareholders do not take these concerns into account, their businesses will likely fail.

What has become known as ‘ESG’ is a way for shareholders and the management teams which represent them – to establish systems for actively addressing the concerns and priorities of all such stakeholders to ensure win-win relationships.

Developing Best Practice ESG systems and strategies for companies in Asia has become a core part of AWR Lloyd’s work in recent years – including Nature Based Solutions, Energy Transition and Corporate Venture Capital strategies.