Business Relationships

Shareholders, Stakeholders, And Supply Chains

The April 14 issue of The Economist (www.economist.com) asks whether the twenty-five year (or more) run of the shareholder value model has ultimately failed.  (NB: See Michael Jensen and William Meckling's 1976 "aha!" work, Theory of the Firm.)  This very fine self-styled newspaper goes so far as to quote a ferociously persuasive practitioner of the model, "Neutron Jack" Welch, who, in a possible about-face, recently called shareholder value "the dumbest idea in the world."

Yet another guru, an academic writing in the Harvard Business Review, has called shareholder value a "tragically flawed premise."  As an ardent adherent of the "human face" school of capitalism, I can only applaud signs of a return to a stakeholder value model, in which the interests of employees, suppliers, customers - and, yes, shareholders - are looked after in a balanced way, and with a long-term (i.e., longer than one fiscal quarter) perspective.

Here is the crux of the contest between shareholder and stakeholder value models, in my view.  Can tightly integrated supply chain partners successfully maintain effective business relationships if they are not on the same4 page of the value-model hymn book?  Further, does insular commitment to a shareholder value model preclude wholehearted participation in a supply chain driven by visions of collaboration, mutual benefit, and sustainable end-to-end performance for ultimate customers?

You may intuit my bias easily enough, but what's your take on the ebb and flow of competing value models?

Comments




  • You are on-point re: US automotive.  They've said the right things in the past, then retreated into the old bad behaviors as soon as things got tough.


    Of course, the industry has been plagued by lose-lose strife in all of its internal relationships for about 70 years.  It's not easy to change religions while toting all that baggage.  -  Art

    artvanbodegraven, 2 years ago | Flag
  • It's likely not entirely due to the shareholder/stakeholder model, but the supply chain of U.S. automotive manufacturers is not a harmoneous and collaborative enterprise. While relationships between the Detroit3 and its supplier partners have been improving lately, that's only after nearlty two-decades of brutal, draconian business tactics have been employed by the auto manufactures to squeeze the maximum expense out its supply chain. This includes required supplier pricing reductions to stay in the running for future business wins, or to maintain existing business. Automakers have been known to simply pull a contract out of a supplier ACTIVELY making parts, and move it to a competitor if the automaker customer feels it to be neccessary. These tactics are done in the name of cost and maintaining car assembly schedules, which in turn maintains shareholder value.


    Bottom line is, the auto suppliers are the ones that get whacked by the automakers' "big stick." Automakers call the shots, and if suppliers want to make money, they had better get on board. Or else.


    So, to your second question, the answer, at least in the case of domestic automaker - supplier relations,  appears to be yes. They may say otherwise, and like I said before, things are moving in that direction, but it's a long way from "wholehearted participation in a supply chain driven by visions of collaboration, mutual benefit, and sustainable end-to-end performance for ultimate customers"


     


     

    rbeene, 2 years ago | Flag

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