Bringing People-focus to Corporate Innovation

Being an Impact Champion: Enacting Corporate Social Consciousness by Priya Nair Rajeev and Simi Joy discusses business and practical insights for management graduates and first-time managers. An excerpt on corporate innovation

In the corporate world, usually, the people that matter are the shareholders. It is taken for granted that the interests of the shareholders come first, and the interests of other stakeholders are only secondary or even lower in the hierarchy of importance. 'Maximising Shareholder Value (MSV), the foundational principle of shareholder capitalism, is the tenet the corporate world functions.

Interestingly, this undue prominence of shareholders was not part and parcel of capitalistic ideals until the late 1960s. The shared perspective from the 1930s was that corporates should cater to the interests of all stakeholders. That was the argument in favor of shifting the management responsibilities from the owners to professional managers. Professional managers, it was believed, would be more neutral and therefore would strive to serve all stakeholders equally. However, with Milton Friedman's article in the New York Times in 1970, the discourse changed. Friedman put forward the argument that attending equally to all stakeholder interests is impossible in reality, and attempts to strike a balance among all conflicting interests would allow the professional managers to perform only sub-optimally. They will have to assign priorities among the varied stakeholder groups in a practical scenario, and without an explicit hierarchy among stakeholders, the professional managers might prioritize as they please. Friedman argued that shareholders, as owners, were the ultimate risk-takers, as they were entitled only to the residual profits of the company after all other stakeholder claims had been satisfied, and therefore deserved to be prioritized among all the stakeholders. He proposed that the singular focus on just the one goal of 'maximizing the value for shareholders' will enable the professional managers to perform optimally rather than satisfy all. The idea – now named 'shareholder capitalism' -caught on,  seems to be the maxim corporates believe in and operate on.

Nearly four decades later, having recognized that the above approach has not been exactly good for societal well-being (Remember the 2008 sub-prime lending crisis in the US and subsequent global economic meltdown), the debate is back on who are the people that should matter to corporates. After the Global Financial Crisis, shareholder capitalism went down in popularity in academic and corporate circles. Harvard professors Joseph Bower and Lynn Paine pointed out the practice of shareholder capitalism was 'damaging,' while the corporate veteran Jack Welch denounced it all together as the 'dumbest idea.' This has led to the re-entry of 'stakeholder capitalism,' which recognizes employees, customers, suppliers, and the community as equal shareholders. Stakeholder capitalism made its way into the Business Roundtable 2019 and was endorsed by 200 CEOs of large corporations. In addition, it has found an avid champion in Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, who advanced it as the central theme of Davos Manifesto 2020.

With influential proponents such as the above in the academic, policy, and practice circles, 'stakeholder capitalism is here to stay. There is mounting pressure on corporates to take more visible and measurable actions to support all stakeholders. While it does not discard corporate valuation based on value generated for the shareholders, corporates will soon be ranked based on additional parameters capturing value created for the rest of the stakeholders. The advocates of stakeholder capitalism make earnest appeals to the corporates to relook their existing business models and find ways to be more inclusive of and responsive to stakeholder groups who are undermined thus far.  This has led to a flurry of innovations on the part of corporates around the world.

Indian corporates are slowly beginning to catch up with this global trend. Unlike the early years of liberalization, when the talk was more centered on market shares, profits, and growth rates, the discussion is being steered to the well-being of the stakeholders. The impact that they have on peoples' lives is attracting greater prominence. Corporates are now more willing to experiment with innovations that will benefit marginalized stakeholders, even if the returns might be low. They aim to understand the specific circumstances and challenges facing each stakeholder group and devise innovative means for creating value for them. For example, recognizing the difficulties women small business owners face in accessing markets for their products, Amazon India launched the Amazon Saheli program.

Similarly, ITC created e-Choupal to provide information and advisory services to the farmers at the bottom of their supply chain (See the boxes for the cases). Such initiatives are different from the CSR initiatives rooted in a philanthropic approach, where the corporates get no financial benefit. These are more tied to the main business of the corporates, as can be seen in Amazon Saheli and ITC e-Choupal cases. While the corporates derive financial benefits from such innovations, such benefits do not accrue exclusively. For instance, in the case of ITC e-Choupal, ITC enjoys a steady supply of quality products from the farmers using the service, but the farmers are free to sell their produce to other buyers.

An excerpt from Being an Impact Champion: Enacting Corporate Social Consciousness by Priya Nair Rajeev and Simi Joy. Published by SAGE Publications India. 2021, 232 pages, Paperback, Rs. 450 (ISBN: 978-93-5479-175-8), SAGE Response.

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