A conflict of interests?Reconciling the interests of shareholders and stakeholders
Speech by Stephen GreenGroup Chairman, HSBC Holdings plcRiskMetrics Conference, Lausanne17 September 2008
Good afternoon ladies and gentlemen, and thank youto RiskMetrics for the invitation to speak to you today.The advert you have just seen is one of HSBC’s mostrecent TV ads, part of a long-running campaign that wecall “your point of view”. What the campaign is trying tosay is that we understand that there are many,contradictory points of view in the world on a massiverange of issues. We think it is possible, indeed important,to recognise and value those different points of view,even where they may be at odds with our individualsympathies.These ads were not, of course, intended as a metaphorfor our approach to our corporate responsibilities but Ithink they echo some of the dilemmas that businesses faceas they seek to define and meet their responsibilities
their shareholders and other stakeholders.The debate about the extent of companyresponsibilities is as old as companies are themselves. Atone end of the spectrum, you have a verynarrow, short-term and limited definitionof those responsibilities – to maximiseprofits for the business’ owners, itsshareholders. At the other end of thespectrum is a much more diffuse conceptof what those responsibilities are, and towhom they are owed.In shorthand, these are often referred toas the shareholder versus the stakeholderideal, with the former model the more overtly capitalist of the two, and rooted in the US. While the stakeholder idealhas a long history in continental Europe, with its spiritualhome in Germany, where the famous principle of co-determination still governs much corporate decisionmaking.Of course, like all stereotypes, these are only partlytrue. The history of corporations going back the last 150years provides numerous examples of companiesassuming responsibilities unprompted –the LeverBrothers and the Cadbury family in the UK setting up themodel villages of Port Sunlight and Bournville to providedecent living conditions for their workers; the landmark $5 wage that Henry Ford offered his workers; the healthand education infrastructure built in America by some of the so-called robber-barons.However, it is certainly true that if it were everenough for a company to declare that its aim was solely tomaximise profits for shareholders, that is clearly not thecase today.The interests of a wide range of other stakeholders –customers, employees, suppliers, NGOs and the widerpublic, to name a few – all stake a claim on corporatedecision-making. And those decisions are made, anddebated, in the full glare of 24-hour media and publicopinion.The number of companies that has to face this realityis growing. Until recently, the private equity market wasable to keep its business just that, private. But that waswhen it was backing mainly small and mid-marketbusinesses.Today, with 8% of UK private sector employees nowemployed by private-equity backed businesses, theindustry faces some of the same scrutiny as listedcompanies. Indeed, the UK industry association’schairman recently acknowledged that private equity“needs to engage with its audiences and explain its role insociety”. Effectively, the distinction is getting a littleblurred and private equity is learning what majorcompanies have been discovering – that businesses todayneed to articulate a ‘social contract’ with the societies inwhich they operate.Defining that social contract, i.e,defining the extent of a company’sresponsibilities, and reconciling theinterests of the various stakeholders in abusiness is an undertaking that hasbecome a much larger and more visiblepart of the management task of any largecompany in the last few years.In the past this contract has beenlargely unwritten. Now it has become astatutory duty for Directors of UK-domiciled companies.The UK Companies Act 2006, which codified Directors’duties, included a responsibility to “promote the successof the company” taking into consideration the interests of employees, suppliers, customers and the company’sreputation.The UK’s minister for industry, Margaret Hodge,described these new statutory duties as “articulating theconnection between what is good for a company and whatis good for society at large”.And what is that connection? It is that the firstcontribution a business makes to society is throughsupplying goods and services that consumers want;creating employment; paying taxes and creating wealth.The full effect of these can be hard to quantify, but adetailed study by the charity Oxfam and Unilever of thelatter’s economic impact in Indonesia four years agoproduced striking results. It found that Unilever’sbusiness, which employed 5,000 people, actuallysupported the equivalent of 300,000 jobs along its valuechain.The company’s contribution to Indonesia’s economywas estimated at US$630 million and Unilever paidUS$130 million in Indonesian taxes.
defining asocial contract
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