Companies

Shareholder capitalism is passé; let’s go back to stakeholder capitalism: Tata Sons chief

Our Bureau Mumbai | Updated on October 21, 2019 Published on October 21, 2019

N Chandrasekaran Chairman, Tata Sons

At a time when several companies and their boards have been found lacking in corporate governance, N Chandrasekaran, Chairman of Tata Sons, has called for deep introspection and debate around the purpose of a company.

In a post on LinkedIn, Chandra said it’s time to move away from ‘shareholder capitalism’ towards something closer to ‘stakeholder capitalism’.

“The pendulum is swinging (back) towards the idea that big business should not just serve shareholders; it also has obligations and a duty of care to employees, to customers, to communities, and the environment in which we all operate,” he wrote.

“For those familiar with the history of industrialisation going back to the late 19th century, this renewed focus on inclusion may elicit a sense of déjà vu,” he added.

Stakeholders capitalism was best described by Henry Ford — that a company is there to produce something, and pay people a wage high enough that they could become your customers. But, according to an article by John Landry in Harvard Business Review, the trouble with stakeholder capitalism isn’t the theory itself but making it work in practice.

Balance interests

“How are managers supposed to balance the interests of stakeholders?. It’s not enough to say that a company should look out for workers or local communities in its decisions. Some firms do have profit-sharing programmes, but you could argue that’s still just good personnel management,” Landry said.

Corporate governance

In India, Chandra’s views assume significance in the wake of a spike in the number of corporates that have been found lacking in corporate governance structures.

Several have been found looking the other way just to enhance shareholder value, leading to job losses and customers staying away from making buying decisions. Chandra said that trust is not built through legal contracts between parties, but by a desire to do right by others.

“For those familiar with the history of industrialisation going back to the late 19th century, this renewed focus on inclusion may elicit a sense of déjà vu.”

 

Published on October 21, 2019
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