Stakeholder value derived from competitive strategy in South African listed companies

Abstract

Historically, it was acceptable for management teams to focus solely on maximising shareholder value (i.e. focus on the needs of one stakeholder being the shareholder). In the past decade however, management teams solely aiming to maximise shareholder returns has become more and more inappropriate. United Nations, business leaders, regulatory authorities, customers, certain group of shareholders and retirement funds require managers to focus on generating value for all stakeholders (with the shareholder being one of the stakeholders) and not prioritise shareholders’ interests. This study focuses on how management actions as reflected in their choice of generic competitive strategy (low-cost or differentiation) impacts stakeholder outcomes. A multivariate linear regression was performed on companies listed on the Johannesburg Stock Exchange to determine this impact. Environment Social and Governance (ESG) indices were used to assess stakeholder outcomes (excluding shareholders), and Return on Assets (ROA) and Tobin’s Q were used to assess shareholder outcomes. Main findings are that differentiation strategy generally produces positive stakeholder outcomes whereas implementing a low-cost strategy does not always produce positive outcomes for all stakeholders. In addition, it was found that ESG performance and financial performance relationship is dependant on the financial performance metric that is used.