The great debate about stakeholding continues: is it a means to an end, or end in itself?
INCLUSIVE GOVERNANCE
Competitive companies can take no-one and nothing for granted. Employees, customers, suppliers, competitors and the communities in which they operate, together with shareholders, all have a stake in the company and contribute to its success. This is the message of the fifth report from the Commission on Public Policy and British Business, published on May 20. A collection of 12 essays, Competitiveness and Corporate Governance, includes contributions from Professor John Kay urging the duty of directors to be widen in company law, Tim Melville-Ross of the Institute of Directors on how a stakeholder approach can transform a company’s performance, Chris Haskins of Northern Foods on Cadbury II and David Grayson on community stakeholders and the rise in vigilante consumerism. Contact Andrea Westall, IPPR, on 0171 470 6100
INDEPENDENT DIRECTORS’ DUTIES
The Employment Policy Institute says that the legal duty of directors is to act “in good faith for the benefit of the company as a whole” and not just for current shareholders’ short term interests. Writing in a paper, The Stakeholder Business, Professor John Parkinson recommends an enhanced role for independent directors, explicitly representative of and acting for all stakeholders. He highlights three conceptual approaches to ‘stakeholder’ theories:
achieving long term profit maximisation for shareholders, by paying attention to the concerns of other stakeholders;
running the company in a socially responsible manner, in which ethics ‘oblige’ consideration of other interests and the company almost becomes an ethical entity;
seeing the company as partnership with co-operative stable longer term relationships, as expounded in the RSA Tomorrow’s Company report, in which wealth creation is maximised and shared with everyone, not just the shareholders as owners of the residual once others have taken their fixed share.
A UNION OF INTEREST
The TUC is proposing changes to company law, setting minimum standards of responsible behaviour because “the voluntary route has failed” to achieve a fundamental shift in corporate culture and practice. Speaking at a TUC seminar, What’s At Stake?, on May 23, general secretary, John Monks, said a reform package will be put to TUC congress in the autumn, including:
a new Company Act duty on directors to consider the interests of all stakeholders in decision-making;
wider disclosure of information, plus social auditing;
measures to encourage long term shareholding through tax advantages and a coded of conduct for investment fund managers.
Contact James Vizard, TUC, on 0171 467 1225
RIGHTS OR RUCTIONS AT AGMS
The government published a consultation paper on April 16, seeking views on whether resolutions to company agms should be circulated without cost to all shareholders, provided they have sufficient support, as recommended by the House of Commons employment select committee. At present costs of printing and circulation must be met by those making proposals and some companies have already expressed fears that the proposals will lead to increased stakeholder activism. The consultation also covers other ways to improve communication between shareholders and the board. Contact DTI on 0171 215 0409
FAIR SHARES FOR WORKERS
The prime minister has set large companies an objective that a majority of their workers should also be shareholders by the year 2000. Speaking at the Conservatives’ spring conference in Harrogate on March 30, he said that the last budget had made employee share ownership schemes more attractive and that “now it is up to industry”. When the CBI chairman and director general met the prime minister on May 15, they expressed support for the aim and promised to consider ways of achieving it. Contact CBI on 0171 379 7400
CONSULTATION AND REPRESENTATION
The Involvement and Participation Association has published a guide to European works councils, explaining the benefits of a shared understanding of business strategy and showing how to establish a council. Examples are given from GKN and NatWest, along with an account of Dutch and German experience. Contact Bryan Stevens, IPA, on 0171 354 8040
SATISFYING JOB PERFORMANCE
Companies are not satisfying their employees’ desire for more control over their work. A survey of 5,500 workers in 54 small and medium sized manufacturing companies, published on May 15, found that employees are most critical about participation in decision-making, autonomy, consultation and encouragement of risk taking to capitalise on opportunities. What is it Like to Work Here?, by Sheffield University, says empowerment, and effective communication to achieve it, is a key element in creating a culture which maximise employees’ potential and commitment. Current practice is much less than rhetoric suggests. Contact Corporate Performance Group, University of Sheffield, on 0114 275 6600
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It has been said that communism had a good cause, but lacked a mechanism, while capitalism has a good mechanism but lacks the cause. Some people are now elevating stakeholding into that very purpose of business. Tony Blair has even taken the phrase to symbolise the whole approach of ‘new’ Labour in social and political fields as well as economic.
The word originated in the USA as a play on shareholder, simply to draw a parallel. Most companies see stakeholding simply as a means to an end – maximising long term sustainable shareholder value – and not an end in itself. Yet in practical terms, it does not make a whole lot of difference. Take corporate governance, seen in Cadbury I and (almost certainly) Cadbury II as being essentially about improving the relationship between owners and managers. Independent/non-executive directors are meant to play an important role, ambiguously in but not of the company. Enhancing their role to include other stakeholder interests would not a big practical change. Indeed many companies already use the non-execs on community affairs committees, setting policies and vetting big donations.
The biggest danger is that stakeholding becomes seen in the boardroom as party political, despite community affairs managers having used it for two decades to describe their function. An enormous opportunity was lost when in January a Tony Blair speech catapulted the word via the media into popular consciousness, if not yet popular comprehension. The pity is that BITC and business leaders generally did not step into the debate to claim credit and help define its meaning. But that, as they say, is another story.
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