Boardroom advice from Frans van Steenis

Companies that just focus on profits won't last

FNV announced a “strike storm” in the Netherlands in early February. Staff in various sectors started their fight for higher wages. At the same time, we increasingly read reports about multinationals reporting mega-profits, combined with often extreme bonuses for top management. This seems to be increasingly chafing in society. Companies bear a responsibility in the transition to a balanced society. If a company wants to survive, it must include the context in which it operates in its strategic and tactical policies. A company or organization is no longer future proof when it solely focuses on shareholder value.

Associate Partner Frans van Steenis shares his vision on the necessary – and already much discussed – transition from shareholder value to stakeholder value. Frans has decades of experience as CEO and director of a number of leading Dutch and International companies and organizations, including TUI, Holland International Travel Group, The National Chamber of Commerce, Adecco International, Deloitte Consultancy and The Dutch State Lottery.

From shareholders to stakeholders

Directors should pay more attention to formulating the contribution they make to society. They operate in an ecosystem of shared values between companies, politics, and society. In the past, companies did not sufficiently see themselves as drivers to “contribute” to social change. Fifteen years ago, I was laughed at if I highlighted my views on the importance of stakeholder value in the boardroom. By now it has become common sense. Companies currently focused solely on making profits are facing tough times ahead. After all, today’s society, and not just the younger generations, demands that companies demonstrate what value they realize for society. The pursuit of profit optimization instead of maximization, while considering the interests of your stakeholders on the one hand and ‘planet earth’ on the other, has now become a hard necessity for the survival of companies.

After all, organizations do not exist in isolation, but operate in an ecosystem of many stakeholders. All those stakeholders have an expectation pattern that moves towards a ‘package of demands’. To be truly successful as a company, you need to claim a well-considered social position in that playing field. When, as a company, you make the step-by-step transition from thinking in terms of shareholder value to stakeholder value, you automatically make different investment choices. However, the question is, how do it?

1. Invest in sustainable development

Companies that are only focused on their profits, without making a meaningful contribution to society, experience long-term problems. This short-term thinking gives way to emphatic long-term thinking “beyond people, planet & profit”. After all, our world is not infinite in its resources. This scarcity offers the opportunity – as well as the challenge – for companies to be innovative with its resources and provide space for development and innovation, among other things.

The reported mega-profits, such as by Shell and other energy companies, are a nice touch to shift the necessary change into another gear. These extreme profits, even in percentage terms, should not lead to disproportionate, and hardly explainable, increases in top management bonuses. These profits should lead to investments in sustainable development of the organization and its employees. After all, the transition to stakeholder values means that you invest the increased profits in those parts of your company where you achieve sustainable growth. Invest in the sustainable divisions of your company, thus contributing to a sustainable ESG profile. Invest in HRM, to maintain (mental) health and vitality in the workplace. Invest in research & development, in order to stay relevant as a company and stay away from short-term profit maximization.

2. Invest in collectivity

Solutions for the social transitions of our time must be made in unity. Stakeholders are therefore not competitors, but colleagues. In this commonality, shared values are central. Harvard formulates shared values as the result of policies and activities that contribute to competitive advantage while strengthening the commonalities in which a company operates. When it comes to solving societal problems, governments are often looked to. This is unjustified. It is the business community (SMEs and multinationals) that, with a supporting government, determines long-term economic well-being and must feel called upon to continue to give form and substance to that responsibility. Sustainable well-being can only take shape when we work together.

3. Explain what you do

Finally, as a company you must also explain your added value for society in the right way and in the right place. Transparency is the key word here. Explaining your story is not always easy, as every stakeholder expects an outcome favorable to him or her. You must be able to articulate what value your company contributes to society and what its contribution is in solving short- and long-term challenges.

Hague acts as a bridge between stakeholders, in politics, society and business. Hague helps your company navigate this interplay of interests. Do you sometimes struggle to weave the outside world into your organization? And do you want to share your corporate or organizational vision responsibly with politicians, the Dutch government, the media and society? Hague Corporate Affairs is ready for you.

Please contact Frans van Steenis or sign up for our quarterly newsletter below and receive corporate affairs updates in your inbox.