Shareholder Vs. Stakeholder Focused Companies: Which Brings Higher Financial Returns?

By Sue Funkhouser

Research shows that companies who adopt a stake-holder relationship management business model develop a significant competitive advantage over companies who subscribe to the more traditional shareholder perspective. Case-based evidence is presented in the book: Firms of Endearment:  How World-Class Companies Profit from Passion and Purpose[i].

This bodes well for our clients. Benefit corporations have legally adopted a stakeholder-orientated structure that enables them greater latitude to attend to all their stakeholders (society, environment, employees, customers, suppliers and shareholders), instead of just being beholden to their shareholders. Furthermore, companies who are B Certified have proven (and continue to track) that they meet high standards for stakeholder engagement and positive social and environmental impact.

The researchers began by investigating companies that engendered loyalty and emotional connection with their stakeholders and which they called Firms of Endearment (FoEs).  Thirty[ii] companies made the cut and their financial analysis yielded compelling results.

Research Results: 

The public FoEs outperformed the S&P 500 by significant margins over a 10, 5 and 3 year time horizons.

  • FoEs returned 1,026% for investors over 10 years (ending Jun, 2006) compared to 122% for the S&P 500. That is more than an 8:1 ratio.
  • Over the past five years, the ratio is even higher, because the FoEs returned 128%, while the S&P 500 only gained 13%. This is significant as this time period spanned a deep recession for the United States (and world-wide).
  • Over three years, FoEs returned 73% versus 3% for the S&P 500. 

The researchers predict that the stakeholder-relationship business model will increasingly be viewed as the most effective way to achieve sustained superior business performance.

Given that legislation for Benefit corporations has passed in 18 states and legislation is in progress for 12 states, and more and more companies are becoming B Certified, I have high hopes that their prediction might come true.  This is good sign for our world.


[i] R. Sisodia, J. Sheth, D.B. Wolfe, Firms of Endearment:  How World Class Companies Profit from Passion and Purpose. Wharton School Publishing, © 2007.

[i]IAmazon, BMW, CarMax, Caterpillar, Commerce Bank, Container Store, Costco, eBay, Google, Harley-Davidson, Honda, IDEO, IKEA, JetBlue, Johnson & Johnson, LL Bean, New Balance, Patagonia, REI, Southwest, Starbucks, Timberland, Toyota, Trader Joe’s, Ups, Wegmans, and Whole Foods.

 

 

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