The Primacy Debate & False Dichotomies

This article is dedicated to the memory of Arie de Geus (1930–2019), whom I had the great pleasure of meeting a few times in his later years. And, whom I interviewed for my forthcoming book, the Sages of Strategic Management. His insights remain important and fresh today. They reflect the deep respect he had for humanity which was apparent to me within minutes of our first meeting.

Arie de Geus (1930–2019)

Peter Drucker is said to have made the argument, “the only purpose of an organisation is to earn and keep a customer”. Others argue that employees are the most important stakeholder group. But maximising shareholder value (MSV), has been the practice that won the battle over recent decades, in theory that is.

I have never been comfortable with the idea of any group being given primacy. In truth most businesses are simply not sustainable unless they satisfy a range of stakeholders upon whom they depend, either for survival or in order to thrive.

That is not to say that all ‘stakeholder’ groups, or ‘interests’ as I prefer to call them, are of equal importance, some can be more easily substituted than others, for example. But I think a wise business considers the value of them all carefully, and what value each of them seeks from their relationship with the firm.

This debate continues, and will probably never end, just like the debate about whether strategy is an ‘art’ or a ‘science’ (another nonsense issue in my view since it clearly benefits from both). But in my mind the issue of “stakeholder primacy”, or whether any interest should have primacy, is now resolved thanks to Arie de Geus, author of The Living Company (1997), and a former senior executive of Royal Dutch Shell (1951–1980), who sadly died last November, but at a “ripe old age”, as the saying goes.

Towards the end of the prologue to his book he says, “Financial analysts, shareholders and many executives tell us that corporations exist primarily to provide financial returns. Some economists offer a rather broader sense of purpose. Companies, they say, exist to provide products and services, and therefore to make human life more comfortable and desirable. ‘Customer orientation’ and other management fashions have translated this imperative into the idea that corporations exist to serve customers. Politicians, meanwhile, seem to believe that corporations exist to provide for the public good: to create jobs and ensure a stable economic platform for all the ‘stakeholders’ of society.”

Continue reading this article which was originally posted on Medium

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