Report on Stakeholder Value published

Source: Frank Figge, 29 June 2000

The University Of Lueneburg and the Swiss private bank PICTET & CIE have published a report in Stakeholder Value in association with United Nations Environment Programma (UNEP).The report defines and measures Stakeholder Value for the first time and applies the concept to the European car industry.
The University of Lueneburg, in coopera-tion with the Swiss Private Bank Pictet & Cie and in association with the United Nations Environment Programme (UNEP) has published a new report entitled "What is Stakeholder Value? Developing a catchphrase into a benchmarking tool".

The report focuses on social efficiency as the third pillar of sustaina-ble development. For the first time ever, a method has been developed to calculate Stakeholder Value, applying it at the same time to the automobile industry.

Shareholder or stakeholder perspective? The public debate about the relation between shareholder value and stakeholder concept is usually reduced to this oversimplified question. A potential conflict between shareholder value and stakeholder concept is at the centre of public interest. This is due, as the report shows, to an erroneous understanding of the two concepts. Stakeholder, i.e. groups in the vicinity of companies, that have an influence on and are influenced by the companies, have the potential of a severe impact on the shareholder value of companies. To be able to direct this impact to increase shareholder value, the value of the stakeholder relation-ships from the perspective of the company must be known and thus be assessed. For the first time ever, this report introduces a concept that enables a monetary assessment of Stakeholder Value – covering the third pillar of sustainable development.The author Stefan Schaltegger, Professor for environmental management at the University of Lueneburg, comments: "Social accep-tance and especially sound relationships between companies and stakeholders are a prerequisite for economic value creation and sustainable development. It is surprising to see that the economic potential of value-based stakeholder management has not been recognized up to this point. The mere stakeholder costs, as they are reflected in the Profit- and Loss Accounts, make their consideration inevitable."The report goes beyond a simple description of the importance of stakeholders for todays companies. Taking the concrete example of the European car industry, and using data freely available to anyone working in financial markets, the authors assess the stakeholder performances of Europes leading car manufacturers. To this end the valuation techniques that have been used for many years to determine the interchange between companies and equity providers have been transposed to the companies reciprocal relationships with other stakeholders.

The author Frank Figge, strategic consultant at Pictet & Cie in Geneva comments: "The transition from steel producers to service companies is already complete. However, the applied valuation and accounting methods originate from an era when machinery and fixed investments were a companys most important assets. In a dematerialised world, however, there are different determinants for the success or failure of a company: the stakeholders! So far these have not been accounted for on the asset side." Figge claims employees, clients and the government to be examples of important stakeholders for todays companies. The company has exchange-based relationships with all these parties, comparable with its relationships with capital providers (shareholder value discussion). Figge again: "First and foremost, employees, whom CEOs often refer to in populist terms as ´the companys most important asset´ are totally omitted from the balance sheet."The role of the government also tends to receive far too little consideration, or is not sufficiently factored into the companys valuation.

"Everyone complains about taxes being too high, but no attempt is made to examine or measure the influence of the state or government in power on a potential optimum of social efficiency for individual sectors or companies" comments Stefan Schaltegger, Professor for environmental management at the University of Lüneburg. "Companies do not have to be in the ´cheapest´ country, but need a government with the best i.e. most efficient exchange relationship."Citing the maxim "You cannot manage what you cannot measure",

Figge firmly believes that current management approaches are doomed to failure. Without adequate measurement and manage-ment of stakeholder value it is impossible to optimise shareholder value, i.e. free cash flow.Using the example of the European car industry, the study shows how much value is created (or destroyed) for a company for each 100 units of personnel, tax or interest payments. The results must always be viewed in the context of the market as a whole, and give the management an opportunity to conduct a critical review of their use of resource providers. This makes it possible to examine why the government has a negative impact on a company , for example, but a positive influence on a competitor.

Overall, the analysis shows how efficiently car producers manage the three stakeholder relations both in absolute terms and relative to the industry average. It shows that a high level of profit does not automatically mean that all stakeholder relations are efficiently managed and create value for the business.Commenting the fact that stakeholder concept and shareholder value have been presented as competing concepts in the public debate Schaltegger states: "It is easier to polarize than to integrate. It allows you to hold an extreme rather than a balanced view. The consequence is a result that is shaped by political rather than economic considerations.

Figge, Frank/Schaltegger, Stefan (2000): What is Stakeholder Value? Developing a catchphrase into a benchmarking tool. Lueneburg/Geneva/Paris.

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