9-1b Shareholders Versus Stakeholders

Frances Roberts/Alamy

Customers of this Starbucks Coffee shop can expect being able to buy a high-quality cup of coffee.

At the other end of the spectrum, Starbucks Corporation’s mission statement takes a much broader quality-oriented stance. It states that Starbucks’ mission is “to inspire and nurture the human spirit—one person, one cup, one neighborhood at a time” and that with respect to its coffee “it has been, and always will be about quality...sourcing the finest coffee beans.”4 Thus, Starbucks cares strongly about the communities it serves around the world and about providing customers in those communities with the highest-quality cup of coffee.

Notice, however, that neither Starbucks’ nor Walmart’s mission statements say anything about company shareholders or fiscal responsibility. Many corporate mission statements, however, do emphasize such priorities. For example, the mission statement of Anadarko Petroleum Company, a $13 billion per year global oil exploration firm, states: “Our mission is to deliver a competitive and sustainable rate of return to shareholders by developing, acquiring, and exploring for oil and gas resources vital to the world’s health and welfare.” Anadarko’s mission has both a global (world) orientation and a strong focus on providing a solid and continuing “rate of return” to shareholders.5 Finally, and somewhat similarly, the mission statement of Altria Corporation (the manufacturer of Marlboro, Benson & Hedges, and other cigarettes) says that company’s mission “is to own and develop financially disciplined businesses that are leaders in responsibly providing adult tobacco consumers with superior branded products.”6

In sum, corporate mission statements in a sense provide a blueprint for companies in their strategy formulation and control functions. As the company conducts business, its executives can monitor performance against its stated mission and goals. One critical difference among mission statements of different companies is the extent to which they express an orientation toward shareholders versus stakeholders or vice versa.

The shareholder model of strategy formulation operates from the basic premise that the key strategic purpose of a business is to maximize financial returns for its owners or shareholders. The late Nobel Laureate economist, Milton Friedman, a proponent of this viewpoint, summarized it by once stating that the overriding strategic goal of corporate officers should be “to make as much money for their shareholders as possible.”7 Graphically, a shareholder model of strategy formulation is set forth in Exhibit 9.1.

shareholder model of strategy formulation

strategy formulation model that operates from the basic premise that the key strategic purpose of a business is to maximize financial returns for its owners/shareholders

eConoMiC PerSPeCtiveS Royal Dutch Shell—A “Shell” in the Oil Industry

Recently (as also noted later in the chapter) the price of oil/gasoline has fallen from former all-time high prices of over $100 per barrel. Many small oil companies, especially those with considerable financial leverage/borrowing have gone or are going bankrupt. In this turmoil, however, the Royal Dutch Shell oil company has continued to remain strong—a veritable “shell” for oil and other investors. Shell’s strength has come from various sources. First, the company has maintained a very strong balance sheet with net debt to total capital of only about 11 percent—that represents quite low financial leverage/borrowings. Second, Shell’s business operations are relatively quite diversified. It has, for example, a large oil refining business that actually (unlike the company’s oil exploration operations) benefits from lower oil prices. The company also has a large petrochemicals business, which further diversifies its operations. Finally, unlike other oil companies, Shell has deferred any major new projects mostly until the year 2017 and beyond—taking a relatively “wait and see” approach to macroeconomic events. The upshot of all this is that Shell remains a rather safe company in a very volatile and risky area of international business.

Questions:

1) Conoco Phillips Corporation and some other major oil companies have spun off their oil refining operations as separate corporations to shareholders. What might be some positive aspects of such a stock spin-off? 2) Royal Dutch Shell Corporation is actually headquartered in two countries—the Netherlands and Great Britain. How might this dual country headquartering contribute to the firm’s “cautious” approach to its operations?

Sources: Helen Thomas, “A Shell for Fearful Oil Investors in 2015,” Wall Street Journal, www.wsj.com, January 4, 2015; Investor, Royal Dutch Shell Corporation/Shell Global, www.shell.com, last accessed February 12, 2015.

Exhibit 9.1 ShareholderS’ Model of StrateGy forMulation

Global Business

How Does Strategy Formulation Affect ___?

stakeholder model of strategy formulation

strategy formulation model that believes that businesses exist to benefit not just their shareholders, but also various groups, such as employees and customers, that have a meaningful stake in their operation

Shareholders

@ Cengage Learning 2014

In contrast, the stakeholder model of strategy formulation believes businesses exist to benefit not just their shareholders, but also all the various groups that arguably have a meaningful stake in their operations. Such groups, for example, might include a company’s employees, customers, and the general communities where it operates. Indeed, it could

Exhibit 9.2 Stakeholder Model of StrateGy forMulation

Suppliers/ Vendors

Creditors

Global Business

How Does Its Strategy Formulation Affect ___? Employees

Consumers/ Customers

Communities Where It Does Business Shareholders

@ Cengage Learning 2014

even be argued that a business should treat banks and other institutions that lend it money (i.e., creditors) as stakeholders, because such entities also have a clear vested interest in and relationship with the business. Graphically, a stakeholder model of strategy formulation is set forth in Exhibit 9.2.

In terms of the companies whose mission statements we discussed earlier in the chapter, Starbucks Corporation clearly takes a stakeholder approach toward strategy formulation, in that it places considerable emphasis on how its business decisions affect its customers and the neighborhoods and communities where it does business, in addition to how they affect its shareholders. In contrast, the large oil exploration company, Anadarko Petroleum Corporation, takes more of a shareholder approach in this regard, placing a very clear emphasis in strategy formulation on how its business decisions will help deliver an ongoing and competitive rate of return to its shareholders.

Understanding the differences between shareholder and stakeholder orientations in strategy formulation is important in determining appropriate “control systems” for the given global business, as we will discuss later in the chapter. For example, if contributing to the communities where the company does business is an important strategic goal pursuant to a stakeholder approach, company charitable contributions and other corporate social responsibility (CSR) indicia will be important to measure and review on an annual basis. However, if the given global business takes essentially a shareholder approach in this regard, CSR-related outputs will be relatively unimportant.

R eality Che C k lo-1

Find and read the mission statements of some of the companies you interact with regularly. How would you characterize each mission statement? Are some more oriented to profits and others more to CSR?

9-2 Strategy Implementation

Let’s suppose that a global company has successfully formulated a strategy, whatever that strategy might be. Now what? The next part of the process is clearly putting said strategy into action. We call this “strategy implementation,” meaning that the global business now has to implement this strategy.

LO-2

Explain tactical versus operational plans in implementing corporate strategy and Miles’ and Snow’s four basic types of longer-term strategic implementation.