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The shareholder now ranks last

There is a clear change in the ranking of company stakeholders. To deal with the healthcare crisis, which is becoming an economic crisis, companies around the world have endured subtle, and not so subtle, pressures to re-arrange who they look after first among their stakeholders.

In normal times, and in more capitalist cultures, it is the shareholder that usually ranks as the most important stakeholder for listed companies. This has clearly been the case in economies such as the US, UK and Australia. A round of redundancies for companies listed in these markets has often been cheered by shareholders with a rally in the stock price. Big distributions are paid to keep shareholders happy and often these distributions come at the expense of labour-market-supporting capex.

The result of a shareholder-focused equity market is clear. Profitability is higher, resources are used more efficiently and returns to the shareholder are greater. Plenty of wealth is created.

Coronavirus has changed priorities

However, the global pandemic has led companies to re-assess who they ‘look after first’ when conducting their business. While the shareholder has previously ranked first, we think they now rank last. Our guess of the current order of stakeholders in most developed countries, including Australia, is in Figure 1.

Figure 1: Stakeholder ranking for Aussie listed companies















Source: MST Marquee

Our thoughts here are supported by recent changes in how companies conduct their business. For example, succumbing to pressure from the Bank of England, UK-based banks announced a cancellation of their 2019 dividends (which still haven’t been paid) and agreed not to carry out share buybacks. The UK regulator welcomed the change.

In the US, companies receiving emergency loans from the Federal Reserve’s US$4.5 trillion facility will face temporary limits on what they can pay executives. They will also need to keep their workforces stable and face restrictions on shareholder distributions like buybacks and dividends. There have also been other efforts to help during the pandemic which makes it clear shareholders are currently not the most important.

European alcohol companies, like Diageo, often on the wrong side of the ESG stock screens, are now creating hand sanitiser to be donated. Fashion companies like Prada and Zara have shifted their focus to making surgical masks, also to be donated. Novartis has promised to donate enough doses of its malaria drug to treat several million people if trials show it is effective in fighting COVID-19.

Encapsulating all of this change, the CEO of Bank of America, the chairman of DSM (a Dutch chemical company) and chairman of Siemens and Maersk have written an open letter endorsing the change in stakeholder principles where the shareholder seems to rank last.

Corporate actions in Australia

In Australia, the banks are providing loan repayment holidays at significant immediate cost to their own shareholders. They have also been asked to bear some of the pain in New Zealand. Prime Minister Scott Morrison has asked landlords, including REITs (listed property trusts), to ‘work out the issues’ with their struggling tenants, at a likely cost of considerable dividend cuts.

The Australian Energy Regulator has asked for a whole-of-industry-response to households and businesses enduring challenges. Meanwhile, Transurban said it will shorten the amount of time it uses to pay bills and proceed with current projects to employ people. However, the company seems to be putting its suppliers and creditors ahead of the broader community. While Transurban will help those customers who reach out to them, they stopped short of providing a blanket reduction in their tolls. We are not sure how many of their customers have the time to ask them for help paying tolls, or how many were listening to the analyst call, but it did seem like the ‘lowest cost option’. We wonder if they’ll change their mind given the government hands out contracts to them. Plus their largest shareholders, the industry super funds, have members who are renowned to be some of the most socially conscious investors in Australia.

Change in the face of a pandemic 

We think the current message to corporate Australia is clear: ‘Do Your Bit’. You need to help out and shareholders will endure pain in the short term. In our view, Australia Inc should adopt a whole-hearted approach here, not only for the livelihood of the broader community but also to generate goodwill with their other stakeholders, to allow for their business to return to normal when the economy does.

However, we need to also consider the rules to investing could be changing for some time to come. While less shareholder-focused companies are appropriate for now, over the longer term this could mean less efficient use of resources, wasteful investment and less wealth for everyone.

We hope the current era where shareholders rank last is temporary.


Hasan Tevfik is an Investment Strategist at MST Marquee. This article does not constitute a representation that an investment strategy or recommendation is suitable or appropriate for an investor’s individual circumstances. It may not be construed as personal advice or a recommendation. 


April 20, 2020

You can ignore shareholders but you can't have your cake and eat it too. Cutting dividends will take away an important income source for retirees, as retirees spend down their assets due to no income, they will become eligible for a part age pension (or more age pension) and all the extras that go with it. In my case I am eligible for the jobseeker payment, (assets held in super don't count) and for the first time in my life I have made a claim, I consider this as compensation for the reduced dividends in my SMSF.

April 17, 2020

Forget shareholder's interest at the company's peril.

April 16, 2020

I agree with the article.
I invest in companies and become a part-owner of that company not to impose my views on management, not because I expect them to become agents of whatever is currently popular, but for the good of my family. I have to invest my savings in shares because term deposits are obsolete. In return for the risk I take with shares I expect a return from an either an increase in the value of my investment and/or a sustainable dividend income. If the company cancels the dividend I will not be a happy shareholder and will vote accordingly. It would be obscene for my dividend income from my share investment savings, which my family depends on for financial security, to be regarded by government or social activists as optional and sacrificial.

April 16, 2020

Ignore shareholders at your own peril, just ask Bill Shorten

Jack McCartney
April 16, 2020

Paul Polman from Unilever also agrees with Pablo and Jack Welch....

If we are serious about becoming carbon neutral by 2030 (and we must be), it's time to move on from Milton Friedman and neo-liberalism and get serious about adopting the United Nations Sustainable Development Goals.

Pablo Berrutti
April 16, 2020

What a shortsighted article.

Well before COVID-19 there was a growing wave of recognition that a stakeholder approach to company management is the best way to deliver for shareholders over the long run. Most notably (and surprisingly) by the business roundtable in the US.

The era of shareholder primacy has been defined by myopia, short-termism, and exploding executive pay while often delivering poor outcomes for customers, employees and the environment - all ultimately unsustainable, take the banking RC, systemic gender bias, or the impacts of climate change as examples. It has also, as GMO showed, worse for shareholders.

Shareholders, are of course important stakeholders, but managing companies is not about creating pecking orders of who comes first and who comes last, it is about recognising that companies must deliver value for all stakeholders while being good environmental stewards if they are to succeed over the long-term. Doing so requires flexibility and balancing of interests. This evolution in corporate thinking began well before and will continue long after the effects of this health crisis pass.


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