Business requires people. Some are employees, some are customers, and others are suppliers, members of the community, or investors/shareholders. 

The problem is that, for the last 50 years or so, this last group, investors/shareholders, has gotten the lion’s share of the attention. And while this select group is important, a much larger population fills out the other stakeholder groups. And, much like the damage done by inequitable decisions seen in families where one child is put ahead of the others, inequitable decisions in business have been similarly devastating to not only workplaces and customers but to society overall.

Jobs have been off-shored. Mass layoffs have become part of the “cost of doing business.” Wages have stagnated or decreased. Price gouging under the aegis of inflation has become de rigueur. Environmental and safety concerns have been sidelined. All at the expense of employees, customers, and communities so that shareholders (many of whom are company executives) can prosper. 

For those who believe this is the way it has always been, you need a history lesson. Prior to the 1970s, companies saw things differently. Take this 1951 quote from Frank Abrams, CEO of Standard Oil of New Jersey: “The job of management is to maintain an equitable and working balance among the claims of the various directly interested groups … stockholders, employees, customers, and the public at large.” This approach—that one person or organization could only thrive if all entities contributing to business success thrived—was common.

It wasn’t until the 1970s that Milton Friedman and others—many coming out of the selfishness-as-a-virtue school of Ayn Rand—began evangelizing the opinion that the only responsibility businesses had was to their investors/shareholders. This spawned a flurry of activity to prioritize wealth creation above all else. Customer concerns, along with quality service, began a rapid decline. Employee welfare—including pay equity, retirement plans, and job security—was thrown out the window. Environmental protections and taxation were fought tooth and nail. And…a myth was even started that shareholder primacy was a legal requirement (it is not)…all under the banner of profit for shareholders. 

Today, in another effort to bolster the shareholder primacy flag, an argument is being proffered that says trying to balance the needs of all stakeholders would spread a business’s focus too thin and cause irreparable damage. Hahaha, nice try. If this is true, then how does any sports team manage? Baseball teams don’t just focus on first basemen. Football teams don’t just focus on running backs. Soccer teams don’t just focus on goalkeepers. All have managed to help every position in their respective teams get what they need to perform at their best. And if you are decrying my sports team analogy, consider this: all of your stakeholders are team members. For your company to be able to operate, it must include more than just employees and certainly more than just investors/shareholders. 

But how can a business make it work? Well, how about, instead of making a single stakeholder the priority, making service the priority? This means constantly asking, “How do we best serve all of our stakeholders?” This means putting value creation in the driver’s seat. This means creating a strategy that looks at how you ensure customers get their job done with minimum hassles, how you ensure you are creating an environment where your employees want to work and bring their best every day, how you ensure consistent on-time payment of your suppliers, how you pay your fair share in taxes and contribute to civic enterprises to create community goodwill that provides prolonged benefits to your business, and how you continuously improve and innovate to create long-term growth that provides durable returns for investors/shareholders. 

This is a service-focused approach. No one stakeholder is put in front of another in the same way that a baseball team manages all of the different positions on the field. Coaching and developing the outfielders, infielders, pitchers, and catchers is not only possible but necessary to win. This is true for business, too, and a service-focused strategy can do it. 

Shareholder primacy has been tried, and it has largely served to enrich and increase the happiness of a few at the expense of the prosperity and happiness of many. It is proving to be a failed theory, and a damaging one at that. 

While a few businesses are trying various things to incorporate stakeholder balance, none that I know of has given service focus a try. Why not? I think its time has come …for all our sakes.  

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