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Shareholder capitalism to stakeholder capitalism: Are Indian family firms prepared?

The debate around primacy to shareholders versus stakeholders is not about the reaction of corporations to exigencies or CSR spends. It is also not about one bottom line – profit. It is about a triple bottom line – people, planet, profit -- and generating value for all constituents in a fair and equitable manner.

April 18, 2022 / 08:32 AM IST
The governance scores of family firms in the ESG (Environment, Social and Governance) rating, as per Reuters and Sustainalytics data, were found to be lower than those of other firms. (Photo by Akil  Mazumder/Pexels)

The governance scores of family firms in the ESG (Environment, Social and Governance) rating, as per Reuters and Sustainalytics data, were found to be lower than those of other firms. (Photo by Akil Mazumder/Pexels)

SOUGATA RAY, NUPUR PAVAN BANG & NAVNEET BHATNAGAR 

The debate whether companies should be governed with the sole objective of maximising shareholder value (shareholder capitalism as reflected in the shareholder primacy model advocated by Prof. Milton Friedman) or balancing the interests of multiple stakeholders (stakeholder capitalism as reflected in stakeholder primacy model advocated by Prof. R. Edward Freeman), including shareholders, has been raging for several decades.

Climate disasters, rapidly rising inequalities and COVID-19 have perhaps put to rest the shareholder vs. stakeholder primacy debate and tilted the balance firmly in favour of the latter. Modern corporations, irrespective of ownership, have an obligation to act in the interests of multiple constituents -- viz., ecology, environment, society, and shareholders.

It has been argued in literature, with some empirical validation across country contexts, that family firms are generally more influenced by the ideals of stakeholder capitalism and less by the idea of shareholder capitalism.