Creating stakeholder value: Getting real with social impact

Businesses create real value if they create fulfillment for other people - Kamil Toume

The concern of creating value in business is often misunderstood as merely ensuring financial benefit. Value is a much wider phenomenon and a mix of monetary reward, good perception and social impact. Social impact is often the trickiest of these interrelated goals, for it is hard to pin it down to a set of fixed determinants.

Impact creation can include everything ranging from sustainability to maintaining trust with consumers and investors, taking into account a myriad of possibilities. Even as this code can be hard to crack, a foray into understanding it can begin with a crucial word, stakeholders. A business is truly supported, sustained and galvanized by not just its employees and shareholders, but also by customers and communities. Consequently, real social impact is created when stakeholders are holistically considered in any endeavour to create value.

To clarify, maximizing returns for shareholders and creating profits is an inextricable part of value creation, but the concern goes beyond this obvious goal. Companies, which prioritized mere profit creation over value, have suffered losses which cannot be quantified.

Taking the example of sustainability, a publication by McKinsey notes, “Companies whose short-term focus leads to environmental disasters also destroy shareholder value, not just directly through cleanup costs and fines but via lingering reputational damage. The best managers don’t skimp on safety, don’t make value-destroying decisions just because their peers are doing so, and don’t use accounting or financial gimmicks to boost short-term profits. Such actions undermine the interests of shareholders and all stakeholders and are the antithesis of value creation.”

There is a need to go beyond the hallowed cubicles of corporate social responsibility and profit making to walk the extra mile for value creation. This requires linking strategy with responsibility, which can be achieved in a variety of ways, such as leveraging of technology to measure indicators which have immediate significance to people. For example, instead of just measuring returns on investment and declaring certain policies under CSR, a company can measure things like the environmental costs of production, the diversity of its employees and consumers and launch outreach programmes for sustained feedback. This strategic approach to value creation enables a dynamism that supports the economic concerns of business, while elevating it beyond the financial world, to a realm of worth which cannot be gauged through statistics all the time but experienced through impact.

This also sets in motion a chain reaction of conscious choices and responses. In fact, creating value for all stakeholders is part of what R. Edward Freeman and Heather Elms term “responsible capitalism” in an article in the MITSloan Management Review.

They write “[…] business can drive demand for responsible capitalism by offering responsible options for all stakeholders. […] Consumers need to purchase responsible products and services. Employees need to choose to work for responsible employers. Suppliers need to provide for responsible buyers. Investors need to finance responsible opportunities. And communities need to welcome responsible entrants and help to sustain responsible incumbents.”

We’re looking at a model of long-term value, enshrining a mission to support and unsurprisingly, it reaps rich dividends for businesses. A study by the cKinsey Global Institute that surveyed 615 large- and mid-cap US publicly listed companies from 2001–15, found that those with a long-term view—something that is essential to stakeholder capitalism—outperformed the rest in earnings, revenue, investment, and job growth. More research by McKinsey found that companies with strong environmental, social and governance (ESG) norms recorded higher performance and credit ratings; other research has found that such companies perform better during crises.

To sum up, creating value for stakeholders is the surest journey to strong social impact, an enabler of performance and profits and a championing of long-termism and sustainability. It builds trust, supports the communities which nourish us and takes us into a better future in terms of business and a better world, in general.

To serve with integrity and embark on missions, which are larger than parochialisms, is the hallmark of a worthy organization. Taking aboard all stakeholders and giving them the best is a necessity for the modern business universe, as we celebrate purpose and the world we work for.

(The author is Founder Upsurge Global, Venture Partner Silverneedle Ventures and Adjunct Professor EThames College)