Ask Harry #9: Should company leaders focus on being socially responsible (including ESG) or creating shareholder value?

This question comes up almost daily from students and executives. Before I give you my “opinion” (recall I don’t do Q&A, I do Q&O), let me give you a few hints.

First hint: Remember that I believe that almost every question requires approaching it with a BALANCED PERSPECTIVE.

Second hint: I tell my students in the first class every quarter that no matter what question I ask, if you answer “YES,” you will receive extra credit 😉

Okay, so let’s address the question of “Should company leaders focus on being socially responsible (including ESG) or creating shareholder value?” It seems obvious that a company should focus on creating shareholder value (remember the title of Professor Rappaport’s famous book). Let’s not forget that is a primary responsibility of both management and the board. The reason a person buys a stock at $30 per share is to hopefully see it increase to a higher value so they can buy a house, send their children to college, or maybe save for retirement. It is clear to me in a free market capitalist system that creating value for shareholders should be a priority. HOWEVER, that is not the only priority. As a values-based person and company, there is a responsibility to also participate in protecting the environment and being socially responsible.

The problem appears to be that many see that achieving both of these priorities is either in conflict or even impossible to achieve. Many believe that dealing with the various “stakeholders” simultaneously is impossible.

Let me explain why I do not believe these priorities are in conflict and the answer to the question “Should company leaders focus on being socially responsible (including ESG) or creating shareholder value?” is “YES!!!”

Let’s keep it simple: If I have a desire to create shareholder value, what are the key inputs I need to achieve that goal? I would argue there are two: a fantastic team and customers. So let’s look at both:

Regarding building a great team to serve customers, my belief is that most potential team members (especially in the younger generation) are not going to work for a company that is not socially responsible and focused on being good corporate citizens. Therefore, if I focus on being socially responsible and giving team members the opportunity inside and outside of work to show that we take it seriously, I believe we will attract a great team!

Regarding having a strong relationship with customers, I believe if a customer has the choice of being served by a company that is socially responsible versus one that is not socially responsible, they will choose to work with the company that is socially responsible.

Therefore, my conclusion is simple: By being truly socially responsible (not just green-washing), I believe that we will be able to build a great team with strong customer relationships that will yield a significant shareholder return. Said another way, shareholder value is the conclusion (or dependent variable) impacted by how successful we are with building our team and customer relationships.