Who decides how a company should be managed? the pressure plate

The pressure that activists, public opinion and stakeholders exert on corporate policies continues to increase. Just look at recent cases from Shell or Ahold Delhaize. Business leaders are less and less immune from headaches. Not only do they need to reconcile different interests, but they can also be held personally accountable for the management actions they take.

Who decides how a company should be managed? According to Nobel Prize-winning economist Milton Friedman, it’s simple. According to him, companies have only one responsibility: to make profits within the limits of the law. The rest is the responsibility of the legislator or the government. Since then, we’ve come a long way. Friedman’s so-called shareholder capitalism has given way to shareholder capitalism. The focus on shareholder benefits must be replaced by a broader focus on adding value for all stakeholders, from employees to suppliers and the public to future generations. Everyone agrees on the principles, practical implementation is often more difficult.

Act “with care and attention”

Today, more and more stakeholders are demanding to have a say in the management of companies. Not long ago, the Dutch climate protection organization Milieudefensie went to court to force Shell to take the Paris climate accord into account. Although this agreement does not contain rules that directly bind the companies, the judge considered that Shell must take it into account in fulfilling its “duty of diligence”. Today, Milieudefensie also targets Ahold Delhaize. The organization calls on the supermarket chain to pay more attention to environmental, climate and human rights issues throughout its value chain. In addition to environmental activists, other stakeholders want to influence corporate policies: from activist shareholders to local residents and employees.

How can a business leader reconcile all these interests? Directors are expected to act “with caution and care”. Again, this is easier said than done: ask five different stakeholders or activists what the council should do and each will have a different answer for you. For one, profits must increase, for another, the environmental impact must decrease, and for another, the CEO’s salary must decrease. And, in general, all these demands must be reconciled.

Activists often have a strong story to tell and broad access to journalists, social media and public opinion. A director’s choices often need to take into account a diversity of positions and nuances. But for a director, his choice is not devoid of commitment. While an activist can afford to impose their demands on a company, directors can be held personally accountable for the choices they make.

Broad social debate

Today, in a globalized and mediatized world, a whole series of divergent interests are continually at stake, so it is particularly important that the social debate within the boards of directors is carried out as widely as possible. In addition, directors must make it clear to stakeholders that taking a stand is unavoidable. You can’t make choices without losing: it’s impossible to serve everyone’s interests all the time.

Directors should take into account as many considerations as possible in their decision-making process and should adequately document their considerations and choices. It’s a safe bet that today’s decisions will be judged on the basis of tomorrow’s knowledge and value framework. Directors must be required to consider the interests of all stakeholders, not accommodate all demands.

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