Long Term Strategy: The Path to Business Success
cholars of the Shareholder theory school of thought must be arms up ready to persecute this article. The theory for those who aren’t too familiar with it loosely argues that a company’s responsibility is to its shareholders. If the shareholder’s wish for profit. Then profit they must have. The role of the executive branch expands and contracts depending on the mandate of its stock holders.
The theory at first glance makes sense. A shareholder facilitates the capital growth of a business. Capital being one of the pillars of business success. Capital is the reason why Venture funding and angel funding is thriving. However, a company exists within a delicate ecosystem. The larger the company the more likely the higher the number of customers it must have. Either that or a small very wealthy customer base paying top dollar for their products/services.
The relationship between companies and clients has also shifted. Almost in tandem with the criticisms levied against Shareholder theories. No longer are company’s expected to just be profit making machines. Finding ways to maximize output while minimizing input. Paying minimum wage for strenuous and often dangerous conditions is no longer palatable to the everyday customer. This outlook applies even when companies outsource manufacturing to other countries in efforts to reduce costs.
In the information age, the information asymmetry between client and corporation is slowly decreasing. This, coupled with a thriving competitive landscape has shifted the balance of power toward the customer. Enabling everyday people to boycott products or services provided for one company over the next.
The examples are endless. In the beauty industry cruelty free products are expected as the norm. Natural or organic products are preferred as society becomes more health conscious. Diversity in the company structure, the company branding and company products are inescapable. The fast growth of Fenty Beauty as a product appealing to all women of color is a testament to the shift in power structure and the profits to be made when corporations align with social norms.
Still, what then is the role of the company? Is it possible to do so without affecting profits?
The Shock Doctrine by Naomi Klein as well as arguments by Harvard Professors Joseph Bower and Lynn S. Paine points to a new expectation of corporations. Klein states that the Freidman model impoverishes most citizens while enriching corporate elites. One need only compare salaries of CEO to the salaries of the lowest division worker to get a clear understanding of her point. Joseph and Lynn argue that the short term profit first mentality distracts from though leadership, ground breaking research and innovation intended to push forward human capabilities. The Economist in 2016 argued that the Friedman short term model provided a license for bad conduct.
Short Term to Long Term toward Thought Leadership.
Laws on minimum wage, anti-trust and on climate change, all have the ability to curtail short term thinking, force/ drive innovation and guarantee some semblance of corporate responsibility. However, as corporations work in the societal ecosystem, it is important for them to align themselves with the good of every stake holder and not just their shareholders. This is the sort of thinking driving new age corporations, to some extent. Amazon funding research into climate change, making corporate decisions based on this information. Tesla choosing to go fossil fuel free lowering the burden on the globe and increasing its corporate value in alignment with the populace it serves.
The rise of B corps is a testament to the consumer need for doing business while tackling society’s most pressing problems. The customer wants to like the company they buy products from. No one wants to wear products from companies that they feel are out to make an extra buck for the sake of it. Companies must now see all their customers, and represent them. It is not just some form of corporate virtue signaling. It is a crucial survival mechanism. It is a reputational growth strategy.
Authenticity is the Name of the Game
With every wave, corporations are coming into the spotlight. With the #Me-too movement, corporate policies around women safety comes into question, as well as gender inclusion. The #BLM movement brought into spotlight corporate diversity. I mean all the way to where decisions are being made. This push goes further. It is no longer enough for corporations to release statements of allegiance or simply stay quiet hoping no one notices them. The analysis of whether corporations are truly walking the talk has never been more scrutinized.
It is not just scrutiny, it comes with a reward in the form customer loyalty. Corporations treating all their employees, associated freelancers and independent contractors well is arguably the best form of marketing. Going further, corporations that take seriously their role in society, a recognition of ‘we are all in this together’, is marketing 101 taken to expert level.
This ideology is not necessarily designed to take money out of the shareholder pockets. Mismanagement and illegal practices would be more likely culprits. This ideology is likely to attract better talent . Better talent allows businesses to innovate. Innovation allows companies to thrive.
Slowly companies are shifting toward this goal. Simple things such as extended parental leave, higher wages for employees, bringing dogs to work, company sponsored day care, true diversity and gender balance are now turning into expected norms. The main hurdle, i.e corporations working to grow their lowest common denominator is still in play, waiting for the next amazing company to become its fore runner.
Grace Guyatu Diida
Strategy and Growth, INCMMN