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From Investors to Vestors – Preventing Humanity from Losing Its Collective Shirts

Our London office Director, Michael v B Nagel, recently attended the INSEAD Alumni Forum entitled “Business as a Force for Good?” in London.  At the Forum was a strong line up of speakers drawn from the INSEAD alumni community, including Sir Martin Sorrell, Group Chief Executive WPP, Michael Lynagh, MD EMEA for Dow Jones Corporate, Emma Walsley, CEO GSK Consumer Healthcare and other respected speakers from academia and business.

The overriding message was that sustainability for the benefit of multiple stakeholder groups is good for business.  Based on BIA observations globally, there is a broad trend in society and business to consider sustainability and corporate social responsibility management (CSR) as valid, effective and important contributors to the well-being of humanity.  As an example, The Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the USA published a media release announcing the creation of a new thought paper,  managing sustainability risks within the COSO framework (25 June 2013).  This emphasizes that sustainability sits squarely within any effective corporate governance framework.  There is now an increasing realization that business should work for the common good, rather than to be uniquely short term focused on the bottom line.

In the past 40 years since the neo classical economic model influenced public policies and individuals, there is equally a growing realization that reducing economics to a limited model that ignores human sentiment, behaviours and defines us as rational economic actors focused purely on one outcome of business viz. profits, is suffering from serious drawbacks.  As the New Statesman recently noted, in its 3 June 2016 issue, “Even IMF researchers are calling time on free market dogma and the neoliberal orthodoxies of the past 30 years.”

Camdessus and Suharto

IMF MD Michel Camdessus looks on as President Suharto signs off on an IMF bail-out package. (15 January 1998).  The unintended consequence of this historic decision resulted in Suharto losing his shirt along with millions of his people.

There are growing concerns about the regulatory burdens faced by businesses, which, in BIA’s opinion, are a result of the disregard of human behaviour and expectations engendered by pure application of neoclassical economic theory.  A one dimensional model that does not consider other stakeholder expectations and requirements at the expense of a dogmatic profit focus will lead to an erosion of empathy and a commensurate disregard for others.  As Emmanuel Levinas noted in his seminal work Totality and Infinity, (1969) “The very relationship with the other is the relationship with the future.”

Levinas

Have I got a shirt for you! Emmanuel Levinas, Courtesy of https://schlemielin heory.com/tag/emmanuel-levinas/

Humanity is currently experiencing a paradigm shift from Industrial to Know-How eras.  The Industrial era was hallmarked by asset heavy industries, requiring external investments to establish and profitably operate in any industry ranging from manufacturing, utilities and infrastructure, among others.  The future Know How era is defined by asset light companies that no longer have a need to raise enormous amounts of capital from shareholders and can choose to grow as private companies.  As Fortune notes on 1 June 2016 under the title “Private Desires”, “Uber’s virtual sticker price would make it more valuable than at least two companies in the Dow Jones industrial average.”

These two factors, the current metamorphosis to Know-How focused business and societies, and exacerbating regulatory pressures, are in our opinion a key reason why some companies elect not to go public.

Whither the future of Investor Relations may therefore be an appropriate question at this point.  In some quarters, the current shift in the environment, toward companies remaining private, is perceived as a potential threat to the existence of professional Investor Relations.  The argument is that with fewer or no public shareholders there is no need for a company to engage and communicate with them.

To respond to this argument we need to distinguish between some very different views on the roles and responsibilities of companies.  These can be best summed up as being one driven by Agency models of governance as compared to Stakeholder models of governance.  The Anglo American perspective is one predominantly driven by Agency (or Shareholder) expectations, where management and boards of companies act in the best interest of Shareholders, uniquely focused on maximizing short term profits in line with neo classical economic expectations.  The longer term focused Stakeholder model, in contrast, considers all relevant stakeholders of an organization, which drives management and boards to consider not only shareholders, but an often more complex audience with potentially conflicting expectations and demands.  In Levinas’ perspective, this would result in a much higher level of recognition of Others and thereby the future.

At BIA, we have carefully examined the developments from a trans Atlantic perspective and would propose to introduce a new word to the English lexicon.   The definition of Investor is essentially that of a person who invests money or resources with the expectations of financial gain.  In our opinion, given the much greater emphasis we are seeing on sustainability and managing communications to all stakeholders, the term Vestor should be used.

There is no official definition of the term Vestor.  Its etymology is related to the etymology of Investor, which is based on the Latin Investio, meaning to clothe or cover.  BIA proposes the definition of Vestor to be “A Vestor is any person who has any personal stake in the outcomes produced by an organization.”  In plain English, this means that all of us would prefer keeping our shirts.

Emperor

Courtesy of http://www.haltonhousing.org/emperors-new-clothes/

In essence, at BIA Investor Relations it is increasingly our role to define and assist with communications to Vestors to recognize the paradigm shifts we are seeing in our environment.  If you would like to know more about BIA Vestor Relations, please contact us.