Share

Patrick Kuwana: Balance of power between shareholders and stakeholders shifting

By Patrick Kuwana*

The end of the week saw 3 major ‘economic correction’ cases in which the balance of power between shareholders and stakeholders was put under the spotlight.

The prevailing business climate has unfortunately been dominated by concentrating too much on short term results at the expense of long term sustainability. This short term profit (and personal enrichment) at all costs is one of the biggest contributors to the socio-economic

The first of the cases is the landmark judgment in which the South Gauteng High Court ruled in favour of mineworkers’ to launch a silicosis class action suit against mining companies. One of the statements made by Deputy Judge President Phineas Mojapelo was “All the mining companies are accused of failing to protect the health of the employees when they were legally bound to do so and as a result causing (the mine workers) to contract TB and silicosis.”

The final settlements will most likely run into billions and will ultimately come out of the pockets of current shareholders. The ‘sins of

* For more in-depth business news, visit biznews.com or simply sign up for the daily newsletter.

employee abuse’ committed by the shareholders of the past will now be placed upon the shareholders of today.

The second case relates to the Supreme Court of Appeal dismissing the appeal application by Aurora Empowerment Systems, which means they have to pay more than R1.7bn for the debts of the Aurora gold mine – a major share of that reserved to pay +/-5 000 workers. Again this shows how the greed motive has ultimately been trumped over by justice and righteousness.

The third case is the release of the forensic report about the financial ‘shenanigans’ at Auction Alliance which has implicated a number of auctioneers, bank officials, liquidators and prominent individuals in secret commission payments worth hundreds of millions of rand. At the end of the day this demonstrates how a business can abuse its number one stakeholder – the customer.

The reality is that historically a lot of economic structures in some industries and their related business models have been constructed with the sole objective of shareholder value maximisation at the expense of other stakeholders (employees, clients, government, communities, etc.).

Africa has carried the brunt of this more than any other continent as resources have been exacted and much wealth created with very little regard for the welfare of workers and their families and the socio-economic development of local communities.

These archaic models and equally archaic thinking will lead to the downfall of businesses that choose to keep them. Could the silicosis class action be the first of many on the African continent as the ‘chickens of past injustice towards stakeholders come home to roost?’ Is this one of the signs signalling the end of the era of total power to the shareholder in favour of a balanced shareholder to stakeholder relational power ratio?

This points towards the fact that it is critical for business and in fact entire industries to re-examine their ultimate motive if they are to deliver long term shareholder value. The businesses and industries that adopt intentional strategies that are focused on delivering stakeholder satisfaction are the ones that will deliver long term sustainable shareholder value.

I believe that these 3 cases are warning shots that every corporate operating in South Africa and across Africa should pay attention to. A corporate social investment ‘sideshow’ strategy to deal with the balance of shareholder to stakeholder relational power is no longer good enough.

What most companies have reluctantly adopted as a ‘sideshow’ now needs to be elevated into the main stream strategy because it will determine their mid to long term success. Introspection in the business sector is needed – it may be time to relook strategy and the elements that underpin the strategy – vision, values, organisational culture, stakeholder value creation, value chain structure and the operational model.

Do they line up with the new economic reality of ‘delivering maximum stakeholder satisfaction as a prerequisite to delivering maximum shareholder value’? Those that don’t shift into this stakeholder relational and value creation approach may be the ones out of business in the next 10 to 15 years as these market forces push them out.

In a previous article I talked about the need for ‘economic resource balancing’ for South Africa to harness its full potential, and this process of balancing shareholder to stakeholder power is a big component of this.

The other day I had the opportunity to review the annual report of a leading African mining company that has adopted the stakeholder value creation approach and it’s amazing to see the impact they are making in every community and country that they work in.

What is even more amazing was seeing the quality of their financials in a market environment where almost every other mining firm is exponentially shedding investor value, disposing of assets and cutting staff.

Patrick Kuwana is founder and CEO of Crossover Transformation Group. You can contact him at patrick@crossovertransformation.co.za.

* For more in-depth business news, visit biznews.com or simply sign up for the daily newsletter.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.97
-0.3%
Rand - Pound
23.97
-0.3%
Rand - Euro
20.48
-0.1%
Rand - Aus dollar
12.36
-0.1%
Rand - Yen
0.13
-0.4%
Platinum
911.60
+1.6%
Palladium
1,012.97
+1.1%
Gold
2,214.54
+0.9%
Silver
24.90
+1.0%
Brent Crude
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.9%
Resource 10
57,251
+2.9%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders