How investor stewardship puts companies in a win-win state
Stewardship Asia Centre CEO says a company’s failure to take care of society is a failure to take care of its stakeholders.
CEOs are no longer just expected to be "money makers" of their respective businesses, they are also now being counted on to be the world's change-makers, according to the Trust Barometer study.
The study published by communications firm, Edelman, found that 60% of employees want their CEOs to speak up on controversial social and political issues, particularly those they care about like climate change and economic inequality –- challenges which for those surveyed are not being addressed enough by the business.
This is why Rajeev Peshawaria, CEO of the non-profit organisation Stewardship Asia Centre (SAC), is calling on businesses to adopt investor stewardship, which happens when investors exercise “active ownership and engagement.”
“This means using that capital and their influence to shape better corporate behaviour towards E (Environmental), S (Social), and G (Governance), to sustain long term value creation,” he explained during an exclusive interview with Singapore Business Review.
“So when we say stewardship, what we mean is addressing the needs of different stakeholders, not just shareholders, but multiple stakeholders, including future generations and the environment, whilst creating value through business,” he added.
4 core stewardship values
To successfully manoeuvre the stewardship route, Peshawaria said businesses should first believe in the four core stewardship values: interdependence, long-term view, ownership mentality, and creative resilience.
Interdependence, according to Peshawaria, is the “basic bedrock of stewardship.”
In SAC’s manual, it was stated that organisations and leaders who possess this value see the world “as an integrated and interconnected web in which the success of each constituent is coupled with that of other constituents.”
This was reiterated by Peshawaria, saying: “We cannot succeed in isolation.”
According to SAC, interdependence allows organisations to generate a better economic return, and a testament to this is Starbucks whose CEO, Howard Schultz, “indicated his belief in interdependence” when he bought the beverage company.
“As soon as he became CEO, he provided all employees, including part-time workers, health insurance benefits. Shultz strongly believed that unless employees were well cared for, the company would not succeed, indicating his belief in interdependence,” SAC said.
For the next core value, the long term view, SAC cited Faber-Castell, saying that it had long been committed to environmental sustainability and socially responsible practices.
Based on a McKinsey Global Institute survey, companies with a long-term view can get up to 36% and 47% higher earnings and revenue, respectively.
Another steward leader in the business scene is Netflix, which SAC said has the ownership mentality value because of its policy of not implementing a cap on the number of days that employees could take time off and also allowing them to use the company expense account with no limits.
“Employees were given broad parameters such as “use good judgement” and “act in Netflix’s best interests” and were trusted and empowered to make decisions,” SAC shared.
In Singapore, one steward leader is DBS Bank, whose digital transformation journey exhibits the last core value: creative resilience.
“Unlike organisations that set up separate departments to manage digital transformation, DBS instituted systemic changes across the organisation. It focused on building a culture that embraced technology, encouraged innovation and digitisation,” SAC said.
“The more innovative processes are built into the company, the more pay-off can be expected,” said SAC in its manual.
Businesses who pay attention to issues will always be in a win-win situation, according to Peshawaria, adding that consumers today are leaning toward businesses that act responsibly.
“Young consumers and customers of today are demanding better behaviour from corporations… As long as consumers and customers have a choice, they will shun products offered by organisations that don't do so responsibly and sustainably,” he said.
Peshawaria’s statement is supported by the EY Future Consumer Index which found that 43% of global consumers would buy more from organisations that benefit society.
“If you don't take care of society as a whole and your employees, you're not going to create prolonged shareholder value, because your customer will go away,” he added.
In its manual, SAC also cited a Deloitte survey which showed that “purpose-driven companies have greater market share and grow, on average, three times faster than their competitors.”
Pushing business to the stewardship way
Peshawaria said it’s not easy to push organisations to get down to business on matters, especially if they do not see its urgency.
“So they [climate change] are not immediate, they are not here and now—and to get people to act now is the biggest challenge. That's the nature of humanity. We tend to think of dangers that are far away less actively than we think about dangers that are upon us,” he added.
But as much as Stewardship Asia Centres want businesses to be involved now, Peshawaria said the idea of adopting steward leadership should not be forced.
“We strongly believe that the most long-lasting instances of good stewardship come from deep within the person and the organisation's DNA, when they want to do it when there is genuine leadership intent,” he said.
“Forced behaviour doesn't go too long, in our opinion, when behaviour comes from genuine leadership intent goes a longer way in addressing the needs of environment and society,” he added.