Your World of Legal Intelligence
 United Kingdom | +44 (0) 20 7284 8080

Opinion: The loss of stakeholder trust is a hidden cost that's been eating away at the value of many firms, writes Anthony Hilton--and this process began long before the financial crisis.

Document Cited in Related
Vincent
AuthorHilton, Anthony

A startling study published a year or so ago in Harvard Business Review suggested that global shareholder returns had actually fallen in the 20 years since shareholder value had become the mantra of quoted companies.

Other studies have since proposed a reason for this: in essence, it's that allowing the interests of shareholders to trump everything else changes a firm's relationship with its other stakeholders for the worse. Employees feel exploited, suppliers feel squeezed, customers feel misled and governments feel shortchanged by practices such as tax avoidance. Business has found that it needs the trust of all of its stakeholders. Overtly favouring one interest group over another has undermined and, in some cases, even destroyed that trust.

The flaw in the shareholder value model is that it treats business like a machine. The reality is that business is an organisation of human beings and, as such, it depends on a whole ecosystem of relationships if it's to flourish.

Globalisation has created a further aspect to this. It's not that jobs have disappeared overseas, because they have disappeared regularly since the industrial revolution. Rather, it's that the rewards of globalisation have not been shared out evenly. A small global elite has prospered mightily while the vast majority have had their incomes squeezed. Inequality has grown and there is a strong correlation between inequality and distrust in the system.

These are not the only reasons why trust has declined, of course. We're living in an age of regulation. Society is losing its faith in institutions that it once relied on to make complex decisions in its best interests, so it's looking to the law instead. But regulation has adverse consequences: the more tightly people are controlled, the less trustworthy they become. Individuals no longer accept responsibility for their own behaviour. They instead...

To continue reading

Request your trial
COPYRIGHT TV Trade Media, Inc.
COPYRIGHT GALE, Cengage Learning. All rights reserved.

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT