How Stakeholder-Centric and Value Delivery-Focused Is Your Company?

In a theme that was articulated in the 2007 book, Firms of Endearment. authors Jagdish Sheth, Raj Sisodia and David Wolfe called stakeholder-centric and value-focused organizations “humanistic” companies, i.e. those which seek to maximize their value delivery to each group of stakeholders, not just to shareholders. As they stated, right up front (Chapter 1, Page 4):

“What we call a humanistic company is run in such a way that its stakeholders—customers, employees, suppliers, business partners, society, and many investors—develop an emotional connection with it. Humanistic companies—or firms of endearment (FoEs)—seek to maximize their value to society as a whole, not just to their shareholders. They are the ultimate value creators: They create emotional value, experiential value, social value, and, of course, financial value. People who interact with such companies feel safe, secure, and pleased in their dealings. They enjoy working with or for the company, buying from it, investing in it, and having it as a neighbor.”

For these authors, a truly great company is one that makes the world a better place because it exists. It’s pretty much as simple as that. In the book, they have identified about 30 companies, from multiple industries, that met their criteria, called Firms of Endearment, or FoEs. These included CarMax, BMW, Costco, Harley-Davidson, IKEA, JetBlue, Johnson & Johnson, New Balance, Patagonia, Timberland, Trader Joe’s, UPS, Wegmans and Southwest Airlines. Had the book been written a bit later, it’s likely that Zappos would have made their list, as well.

The authors compared financial performance of their selections with the 11 public companies identified by Jim Collins in Good to Great as superior in terms of investor return over an extended period of time. Here’s what they learned:

• Over a 10-year horizon, their selected companies outperformed the “Good to Great” companies by 1,028 percent to 331 percent (a 3.1 to 1 ratio)

• Over five years, their selected companies outperformed the “Good to Great” companies by 128 percent to 77 percent (a 1.7 to 1 ratio)

Just on the basis of comparison to the Standard & Poor’s 500 index, the public companies singled out by Firms of Endearment returned 1,026 percent for investors during the 10 years ending June 30, 2006, compared to 122 percent for the S&P 500—more than an 8 to 1 ratio. Over 5 years, it was even higher—128 percent compared to 13 percent, about a 10 to 1 ratio. Bottom line: Being stakeholder-centric and value-focused is good for the balance sheet, as well as the stakeholders.

Advanced companies conceive, map and plan out customer and employee value delivery, recognizing that experiences are actually a form of branding architecture, brought to life through excellent engineering and processes. Companies need to focus on the experience touchpoints, at a granular level, which are most influential. Typically, they are rewarded with outstanding financial results.

Sisodia continued his pursuit of the power of stakeholder-centricity in Conscious Capitalism, co-written with John Mackey (co-CEO of Whole Foods Market, just purchased by Amazon) and Everybody Matters, co-authored by Bob Chapman (CEO of Barry-Wehmiller). The concept of Conscious Capitalism drives and guides businesses through “higher purposes that serve, align, and integrate the interests of all their major stakeholders” It keys on creating social and business value, with a humanistic, stakeholder-centric touch. The principal idea behind Everybody Matters is the essential role of servant leaders within an enterprise in building an sustaining stakeholder value.

As an update to the analysis conducted in Firms of Endearment, Mackey and Sisodia directly addressed the issue of results, i.e. how well the conscious capitalism firms have fared financially, in their book (see pp. 277-278). Not surprisingly, conscious capitalism is also very good business. They looked at the investment performances of the Firms of Endearment (FoE) companies versus the S&P 500 during the 1996 through 2011 period. Here’s what they found:

• Fifteen Year Return Rate

FoE – 1,646% cumulative, 21% annualized
S&P 500 – 157% cumulative, 6.5% annualized

• Ten Year Return Rate

FoE – 254% cumulative, 13.5% annualized
S&P 500 – 30.7% cumulative, 2.7% annualized

• Five Year Return Rate

FoE – 56.4% cumulative, 9.4% annualized
S&P 500 – 15.6% cumulative, 2.9% annualized

And then there is the specific impact and multi-layered role of employees, not just in a satisfied or engaged state, but as fully-committed ambassadors and contributors to enterprise success. Employees have a keystone effect in making real the company’s promises of humanity and value delivery. How much does your organization understand the influence employees have on brand image, customer value perceptions and loyalty behavior through their internal and external day-to-day interactions?

All employees, whether they are customer-facing or not, are the core vehicle for delivering optimized, often branded, customer experiences. Making the experience for customers positive and attractive at each point where the company interacts with them requires an in-depth understanding of both customer needs and what the company currently does to achieve that goal, particularly through the employees. That means companies must fully comprehend, and leverage, the effect employees have on customer behavior, and they must put greater emphasis on the employee experience. As noted by Hal Rosenbluth and Diane Peters in their seminal book, The Customer Comes Second:

“Companies are only fooling themselves when they believe that ‘The Customer Comes First.’ People do not inherently put the customer first, and they certainly don’t do it because their employer expects it. We’re not saying choose your people over your customers. We’re saying focus on your people because of your customers. That way, everybody wins.” To my mind, this is about enterprise stakeholder-centricity, more holistic than strategies of customer-first, employee-first, or even people-first.

So, is your company “human”, a cultural and financial winner that is both stakeholder-centric and value delivery-focused? Does the organization truly understand customers and employees and their individual journeys? Are customer and employee experience optimization embedded within the enterprise DNA? Does the company create emotional, trust-based connections and relationships with customers and employees? Is there an understanding of how to create and sustain both customer advocacy and employee ambassadorship? Stakeholder-centric companies can answer all these questions in the affirmative.