1.3 Can the Two Theories Be the Same?
Having read the introduction, you may have the thought that the shareholder theory and stakeholder theory may in some cases be the same thing. That is, in order to maximize shareholder wealth, the smartest thing to do may be to take a stakeholder perspective. The opening quote by Ray Anderson of Interface hints that that is the case for his firm. He feels an obligation to add value to more than just shareholders. One may ask if taking care of all stakeholders is also the optimal way to maximize owner wealth. For example, are potential customers more likely to buy Interface products and services because they appreciate the work Interface has done over the last 20 years with sustainability as a firm? Are world governments more willing to work with Interface because the firm has decreased its carbon production 90% in Europe? In the Netherlands, "… the plant is operating with 100% renewable energy, using virtually zero water in manufacturing processes and has attained zero waste to landfill" (http://www.interfaceglobal.com/). This type of publicity and the image or reputation that results may be very valuable as a marketing tool for Interface.
Financial investment offers another example for the shareholder and stakeholder paradigms. Some asset management firms have created "socially responsible" investment funds. These funds will not invest in certain stocks that they feel are not socially responsible. Examples are alcohol, tobacco, pornography, and even defense (weapons) firms. The idea is to appeal to shareholders of the investment fund who care about the stakeholders who will be impacted by their investments. You can see how a recovering alcoholic or someone who lost a family member to a drunk driver would not want to invest in a beer company even though it may lower the returns earned on their portfolio. In the case of socially responsible funds, the fund manager is appealing to an investor's stakeholder paradigm to achieve a shareholder objective for the mutual fund company. The investor in the socially responsible fund however, is willing to sacrifice the shareholder objective based on the stakeholder paradigm.
In today's global marketplace, a large emphasis is being placed on sustainability. Sustainability, in this sense, often refers to sustainable businesses. Examples of sustainability include only using and supplying environmentally friendly products, increasing the greenness of the firm, decreasing the pollution footprint of the firm, committing to sustainability principles, and striving to be a contributor to society and human rights. "Greenness" here means minimizing waste going to landfills, using renewable energy, recycling, mitigating greenhouse gas emissions, and so forth.
Consider the 2009 Harvard Business Review article "Why Sustainability is Now the Key Driver of Innovation" by Ram Nidumolu, CK Prahalad, and MR Rangaswami. In this article, the authors discuss how many CEOs are concerned that going green will decrease their profitability and competitiveness. In response to this notion, the article states,
"Executives behave as though they have to choose between the largely social benefits of developing sustainable products or processes and the financial costs of doing so. But that’s simply not true. We’ve been studying the sustainability initiatives of 30 large corporations for some time. Our research shows that sustainability is a mother lode of organizational and technological innovations that yield both bottom-line and top-line returns. Becoming environment-friendly lowers costs because companies end up reducing the inputs they use. In addition, the process generates additional revenues from better products or enables companies to create new businesses. In fact, because those are the goals of corporate innovation, we find that smart companies now treat sustainability as innovation’s new frontier."
The article goes on to support the authors' claim with a suggested road map for companies comprising the following stages:
• Viewing Compliance as Opportunity,
• Making Value Chains Sustainable,
• Designing Sustainable Products and Services,
• Developing New Business Models, and
• Creating Next-Practice Platforms.
To conclude their article, the authors boldly state, "Leadership and talent are critical for developing a low-carbon economy. The current economic system has placed enormous pressure on the planet while catering to the needs of only about a quarter of the people on it, but over the next decade twice that number will become consumers and producers. Traditional approaches to business will collapse, and companies will have to develop innovative solutions. That will happen only when executives recognize a simple truth: Sustainability = Innovation."
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