Is your strategy Superaligned?

After decades of relentless focus on shareholder value, the story of the primary purpose of business being profit to shareholders is starting to shake in its foundation. Based on Milton Friedman’s thoughts that shareholders can be altruistic with the capital that businesses provide but businesses themselves has to only focus on shareholder value. With the emergence of stakeholder theory it has become obvious that there are more groups being impacted by and are impacting the corporation – it is not enough to focus on the shareholder. Businesses are dependent of serving all or several of their stakeholders at the same time in what Tom Gardner, CEO of investment advisors, The Moetly Fool calls super-alignment. Gardner is looking for Superalignment when picking stocks – a principle that has yielded a return of 216% vs the S&P500 return of 58% since 2002.

The most successful corporations were not founded to make money.                                They were founded to solve a problem.  Kip Tindell

Small first steps

Corporations has taken steps to improve relations with employees through improvements of the environment, compensation and benefits and marketing departments have been upgraded to invent saint like stories about the company and its products. The true operating philosophy did not have to change – only the stories served to employees and customers. In the age of internet and social networks this model is as sustainable as an iceberg in equator. Employees can whistle-blow and post their opinions on glassfloor.com or similar networks and customers can easily get experience of other customers or post their own experience. Corporations cannot operate in one way and at the same time serve a fictional story of “Great Corporate Citizenship”.

Creating value for others is the engine of Capitalism. R Edward Freeman

What is even more troubling for corporate dinosaurs that are not willing to change is that the external stakeholders besides customers has the power to truly impact the corporation and in seconds create a sh!tstorm that can bring a large corporation to its knees. The Boycott Amazon, Starbucks voluntary tax payment in Europe and Greenpeace’s battle with Shell that resulted in Lego discontinuing their cooperation with the oil giant are just a few examples of stakeholder power on the rise.

Communication levels with stakeholders.

With the increasing levels of transparency it is going to be important to have a continuous dialogue with the corporation’s stakeholders. Not just serving them marketing stories but allowing them to participate in the strategy process of the company and impact the direction.

It will be increasingly important to identify external stakeholder groups and to develop strong relationships and communications with them. Most companies today have to resort to crisis management when a stakeholder group feels violated by the corporation’s activity.

Respecting all stakeholders benefits the shareholders

There is a group of leaders that have abandoned the path of shareholder value lead by Professor R. Edward Freeman of Darden Business School and a growing group of companies in the organisation Conscious Capitalism. They not only see this strategy as the best one – also the most profitable one.

As Edward Freeman is phrasing it; “The story about business being about money and profits only and people are only acting in self-interest - if it was ever true - its time has long gone.”

The CEO of Containerstore, Kip Tindell, advocates placing the shareholder low in a stakeholder hierarchy. When you create value for all other stakeholders – the shareholders win. If all you want to do is to make a lot of money, this is the fastest way. He sees shareholder value as something that just alienates the employees, the customers and other stakeholder groups.

Fill the other guys basket to the brim and money takes care of itself. Carnegie

Or as Howard Schultz put it in 2007 when Starbucks was in trouble; "The pursuit of profit became our reason for being, and that's not the reason that Starbucks is in business. We're in the business of exceeding the expectations of our customers."

Finding strategies and solutions that benefit multiple stakeholders at the same time is not easy and cannot be done behind closed doors. Corporations will have to open up their strategy process not only to make it transparent but also to invite stakeholders to participate in the strategy formation. How alien it might sound for many corporations, the combined knowledge and creativity could be a source of sustainable competitive advantage.

The only infinite resource we have is our creativity. We need to deal with apparent impossible situations and sometimes create miracles - Miracles are when we create value for all of our stakeholders. R. Edward Freeman