Leader: Time for shareholder interests to take a back seat

It’s not that they are villains. On the contrary, investors have played a central role in ensuring the success of retailers, by buying into IPOs or propping embattled companies up through supporting rights issues and similar as the industry restructures.

But they increasingly form part of a wider stakeholder base, alongside staff and suppliers, whose interests are ignored at a company’s peril.

The shift in shareholder status was forcefully made clear by the US chief executives’ association Business Roundtable, which has come out with a new ‘purpose of a corporation’ statement.

They maintain that purpose is now to promote “an economy that serves all Americans”, in a decisive switch away from shareholder primacy – traditionally priority number one.

Top of their list was delivering value to customers, followed by commitments such as supporting the communities in which they trade and ethical treatment of suppliers. Shareholders are not overlooked but they become part of a bigger pool.

So far, so obvious, you might think. Can we have some more motherhood with that apple pie?

But the 181 signatories are hardly wide-eyed ingénues. They include some of the most experienced and successful people in retail, from Amazon founder Jeff Bezos to Walmart boss Doug McMillon and the chief executives of Best Buy, Home Depot and Target.

Customer-first

Their point of view makes sense. You don’t need to look very far in retail to see instances when too much focus on shareholders at the expense of others, notably the customer, has ended in disaster. Think Phil Clarke’s time in charge of Tesco, for instance, when a focus on fat margins meant shoppers left in droves for the discounters.

Today, when shoppers have such an abundance of choice, and transparency is enabled by social media, the customer is, as Ocado chair Lord Stuart Rose has often said, no longer “king” but “master of the universe”.

And their domain extends to taking an interest in, forming an opinion on, and making decisions based upon what they perceive to be a company’s values – which may be different from what some companies themselves claim.

The best retailers have typically been run, from top to bottom, on putting customer interests first.

“Viewing a business explicitly and exclusively through the prism of shareholder interest looks increasingly outdated”

Perhaps the best corporate tagline in retail is Walmart’s ‘save money, live better’, which appeals to shoppers’ self-interest as well as their broader aspirations and is applicable to any sense of altruism as well.

It’s a business purpose that has served Walmart shareholders well too. The retailer’s shares recently hit a record high as its determination to adapt and succeed in the face of Amazon’s rise bears fruit.

Amazon describes itself as guided by four principles – “customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking”. There is no mention of shareholders, but investors have done very well, thank you, as a result of the etailer’s focus on what – and who – it’s fundamentally for.

Walmart’s purpose is powerful, as are others such as Tesco’s ‘serving shoppers a little better every day’, because it is acted upon. Airy-fairy purpose statements are not worth the paper they’re written on and consumers will easily see through them.

Walmart founder Sam Walton once said: “The greatest measure of our success is how well we please the customer, our boss.”

It perfectly expresses a retail mindset and a way of engaging with the consumer world as relevant now, with all the contemporary challenges retailers face, as when he opened the first Walmart store in 1962.

Viewing a business explicitly and exclusively through the traditional prism of shareholder interest looks increasingly outdated. 

Retailers can only do their best for shareholders when they put the customer, and their changing priorities, worldviews and places they live, at the front of the queue.