Recoupling shareholders, stakeholders and society

Colm Kelly Global Corporate Sustainability Leader, PricewaterhouseCoopers International Limited 26 May, 2021

Co-authored with Dennis J. Snower, President, Global Solutions Initiative. Original article published in the Global Solutions Journal Issue 7.

There is a growing awareness that our economies around the world are no longer consistently serving the interests of the societies in which they operate, nor of the planet on which we all depend. The environment is becoming destabilized: climate change, biodiversity loss, ocean acidification, rising sea levels, declining fresh water supplies, eroding topsoil – the list is endless. There is also a significant sense of social polarization in many countries – rising distrust, weakening of communities, a growing sense of powerlessness among the shrinking middle classes, and growing anti-globalization sentiment.

It is becoming clear that “business as usual” has become unsustainable. Why is this happening? Why does it appear that businesses have been taking decisions that are likely to be harmful to their long- term interests? How and why have our economic activities, which have delivered such significant improvements to the living conditions of so many, become increas- ingly disconnected – decoupled – from the well-being of so many citizens and communities and are at risk of breaching multiple planetary boundaries?

It has not always been thus. In the first four decades following the Second World War, the default assumption in both de- veloped and many developing countries was that economic growth would deliver societal progress. The reason was that economic progress would generate not just higher aggregate income, but also enable governments to provide public goods such as better health services, education and training, and welfare services. Furthermore, economic growth would permit redistributive policies to benefit the disadvantaged without reducing the living standards of the advantaged. Thereby economic growth could empower all population groups to shape their prospects through their own efforts and combine social cohesion with ever improving living standards. Market economies, underpinned by the participation of citizens in competitive profitable businesses, would deliver improved and inclusive outcomes for the significant majority.

''It is becoming clear that business as usual‹ has become unsustainable.''

The Globalization-Technology- Financialization Nexus

This virtuous circle appears to have stalled in the 1990s through what we will call the globalization-technology-financialization (GTF) nexus. Globalization provided access to new markets at a scale not previously seen. Facilitated by enormous shifts in mindset and in the political and economic dynamic that followed the fall of the Berlin Wall and the opening up of China, the communications revolution and the birth of the internet also enabled truly global business models – businesses could not only access markets on a global basis, they could organize their operating models on a disaggregated but hyper-connected basis for the first time – the truly global supply chain. Financialization – characterized by the globalization of financial markets and the use of financial metrics to measure the success of business and the economy – turbocharged access to capital, the globalization process and the accompanying technological advances.

The GTF nexus created an entirely new operating environment for businesses, consumers and governments. The GTF nexus weakened the geographic roots of companies. Multinational companies be- came able to shift activities and assets (especially intangible assets) flexibly across geographic locations to drive changes in profitability. And if they were to compete successfully, they had no choice but to do so. However, companies also began to lose the long-term social bonds that they had traditionally established with their local communities. In short, the ties of mutual obligation between business and society – the social glue that helped ensure that business prosperity was closely linked to social prosperity – became frayed.

The GTF nexus also weakened the connection between work effort and job and income security at the local level. Increasingly, job and income security became linked to the comparable performance of workers in remote parts of the world, or to the impact of increasing automation, or to a combination of both. This experience was profoundly disempowering. We are at considerable risk of a new wave of automation, disruption and disempowerment.

The specific implications for different stakeholder groups became clear over time. The social effects of business activity also fell increasingly outside the domain of the company’s immediate stakeholders, defined as the “groups without whose support the organization would cease to exist.” Regional disparities in income and wealth, as well as job opportunities and skills, that arose through the GTF nexus are a good example of third-party effects of business falling beyond the direct business stakeholders.

''We must find a better balance between the emphasis on financial and non-financial actors in the economic and business frameworks that drive decision- making.''

It should not be surprising in light of this overall dynamic that we see a weakening of companies’ ties to their broader stakeholders – employees, customers, suppliers and local communities – and the environment. In a competitive market system, with financial performance as both the dominant decision factor and the primary responsibility as owed to share-holders, combined with business models now operating with truly global scale and reach, the search for competitive advantage meant that any other consideration would be secondary.

This does not imply that in overall or average terms, or in specific countries and communities, there was not significant societal progress. As economies participated more openly in this globalized, financialized and technology-enabled economy, living conditions for hundreds of millions of citizens improved. Market economies served the purpose of improving the lives of citizens more effectively than the alternative models.

However, citizens and communities that could not compete on these terms were left behind, both regionally within countries and indeed between countries. Planetary boundaries are incapable of supporting current resource consumption levels. The well-being of citizens, communities and the planet are not ignored – but they are secondary to the priority of financial performance in the hierarchy of factors that drive business and economic decision-making. It is evident that if we wish to find a better and sustainable balance between business and society – to recouple economic and social prosperity – then we must find a better balance between the emphasis on financial and non-financial factors in the economic and business frameworks that currently drive decision-making.

In fact, there is an enormous opportunity to ensure that market economies are actively harnessed to specifically address the kinds of challenges we now face. If we are to address the systemic issues of climate and nature risk, and of social and economic inclusion, then we have no choice but to ensure that our economic and business models are intentionally designed to do so. As we have seen, we cannot assume that this is the case today, and we must identify the kinds of change needed to respond.

In the next section, we explore why it is difficult for business to recouple its measured success with social prosperity, by examining the business decision-making cycle. Next, we consider how business practices need to change in order to make recoupling possible. Finally, we explore the role of government and civil society in creating an operative environment for business that enables the desired changes in business practices.

The Business Decision-Making Cycle 

To start at the level of the individual business, it is useful to understand how the primacy of the financial is currently reflected in the decision-making process of an individual business, albeit in a simplified and generic summary form.


By definition, business plans, priorities and the decisions which follow are in- tended to derive from the strategy for the business. And the primary (if not exclusive) focus is on sustaining and delivering finan cial performance over the period. Other factors addressed in the strategic plan are typically treated as enablers, rather than as target outcomes per se.

The foundational responsibility which underpins the strategy is that which is considered to be owed to shareholders, and this in turn has been deeply embedded in the architecture of the legal and regu- latory framework within which business operates.

Planning, Implementation and Incentives 

Having set the scene with a strategic plan, a business moves into planning and implementation mode. In reality this is an iterative process, and although it is somewhat artificial to make a distinction between these two stages (or indeed any of the stages together), it is useful for this purpose.

Objectives are set for each level of management within each business unit, which reflect the cascade of objectives and priorities from the strategic plan. The nature of these objectives may vary depending on whether the particular unit has direct revenue and profit responsibility, or is responsible for delivering other enablers. In all cases, the primary objective is to deliver financial outcomes over the period of the plan, and this is reflected in the specific objectives. These objectives cascade into the personal plans of management teams and staff, and form the basis of assessment - including incentive and performance rewards, promotions and career progress etc - for these individuals.


Management reporting is the essential data within the business used to manage the business and to incentivise performance. It is generally (if not exclusively) related to financial performance for revenues, costs and profits, as well as other Key Performance Indicators (KPIs) which support such performance (eg sales pipeline).

A similar dynamic applies to external financial reporting, typically done on a quarterly basis, and based on a combination of regulatory standards and requirements, and the expectations of investors.

The quarterly reports are used by analysts and investors to gauge the financial performance and outlook for the business, and typically involve investor calls and substantive engagement with management. The priority focus is on the financial performance of the business, the immedi ate outlook for financial performance, and any other KPIs which might influence such performance.

External reporting is also intrinsically linked to governance, which is also dealt with below. For investors, access to in- formation based on a common reporting standard is essential, as it offers a critical data point for the making of comparable investment decisions. Current reporting standards are exclusively focused on financial performance, and are supported by a wealth of technical detail, expertise, an entire profession, and stringent regula tory requirements.


For this purpose, governance can be con- sidered to be the framework within which the relationship between the owners of a business (shareholders) and the operators of the business is established. This includes a set of formal fiduciary/legal responsibilities which typically reflect the primacy of shareholders, as well as mechanisms including the role of the board of the company and non-executive directors who are responsible (amongst other things) for  representing the interests of shareholders in the oversight of the business.

A shareholding interest in a public company can typically be assumed to be an exclusively financial interest, typically managed by professional/institutional investors acting on behalf of others. Engagement with the business is reflective of this, and the governance framework is designed to establish and reinforce this financial primacy. The business access to public capital is typically a function of the degree to which it delivers on this basis, and as explained above this is then intentionally embedded in the management and operating (and incentives) framework of the business itself.

''Adjusting the operating environment for businesses in the broader policy sense is essential.''

Guiding the evolution of Business Decision-Making

Although this is a generic and simplified description of the decision cycle, it offers an opportunity to identify the kinds of change necessary for an evolution in how business decisions are made, so they may reflect the broader interests of society:

  • The formal responsibilities of a busi- ness must specifically reflect the interests not only of shareholders, but also of stake- holders and third parties who are significantly affected by business decisions. These responsibilities must be reflected in the expression of both general duties owed as well as the specific corporate purpose of a business. It is clear that they can be specified appropriately and predictably only in the context of an enabling operative environment, shaped by government and civil society (as described below).
  • The reported performance of a business must reflect not only its financial performance, but also its performance with respect to societal and environmental impacts. Similar to current financial reporting standards, such external reporting must also be aligned with common standards for non-financial reporting, ensuring both consistency and comparability for investors and others.
  • A business must reflect these broader responsibilities and related objectives in its overall strategy and plans, which in turn must be reflected in the management of the business and the related incentives.
  • Finally, the governance framework more broadly, including investors, governance boards and management teams, must be aligned so that the business activities are true to the broader social and environmental responsibilities of the busi ness, including shareholders. Put differently, there cannot be an inherent conflict within the governance construct that inhibits the capacity of the business to deliver on this basis.

Guiding the Evolution of the Environment within which Business Operates

The influence of the primacy of the financial is clear in the analysis of  business decision-making and in the interdependent elements of a system intentionally de signed to prioritize accordingly. However, the same design premise underpins the approach to the economic, policy and social environment within which business operates. How is it that the changed context of GTF nexus also impacts in this regard?

Adjusting the operating environment for businesses in the broader policy sense is essential. Individual businesses cannot be expected to successfully pursue this evolution alone, however well-intentioned. There are compelling examples of businesses taking a lead in this respect, and this is necessary, but not sufficient to move overall economic activity at the required pace and scale. It is also difficult for a business to pursue stakeholder value – or broader societal value – when its competi tors pursue shareholder value. On this ac count, governments must set an operative environment requiring businesses generally to be purpose-driven in the public interest, and in doing so shift the balance between shareholders, stakeholders and significantly affected third parties.

'' We have an extraordinary opportunity – and responsibility – to reorient our market economies to intentionally serve the interests of societies.''

This public interest extends beyond the immediate stakeholders of business, namely, its employees, suppliers, customers and the communities in which it operates. With regard to environmental externalities of business, it is clear for example that significant costs fall on unborn generations, who are not among the current stakeholders of business. The social implications of our current model – disempowerment and increasing inequality, for example, are third- party effects that also extend far beyond the direct business stakeholders.

Business cannot be expected to take such third-party effects into account with out an operative environment that enables it to translate them into measures of busi ness success. An example is to be found in the net zero targets for carbon emissions. Once these targets are appropriately defined – to achieve a scale of value-chain emission reductions aimed at limiting global warming to 1.5°C above pre-industrial levels, while neutralizing residual emissions that are infeasible through per manent removal of equivalent amounts of atmospheric carbon dioxide – and then embedded in the operating requirements for business generally, then business will be able to take environmental costs for unborn generations into account. With such targets in place, business can be given the  latitude to exploit all profitable opportu- nities consistent with its purpose-driven objectives. The role of government is to set the sustainability objectives and the boundaries of the operating environment, not to unilaterally determine the means for reaching the objectives. The latter is the business of business.

Analogous endeavors need to be made with regard to the social repercussions of business. Once again, for example, business cannot be expected to take the third-party effects of regional disparities into account without appropriate facilitation from government, such as through government procurement policies, public infrastructure and investment programs and “leveling up” measures designed to activate business for example in deprived areas.

In all of these illustrative examples, the critical point is to shift the empha sis in decision-making by government away from the primacy of the financial (economic efficiency, GDP growth) and towards broader societal outcomes, balancing the financial and the non-financial, and ensuring that business does likewise as it participates in the market economy based on expectations and boundaries established by government designed to deliver recoupling.

A crucial step in this direction involves measuring and reporting on the broader impact of business – on both business stakeholders and third parties – including the above-mentioned effects arising from the GTF nexus.4 Next, these measures will have to be translated into targets relevant for corporate reporting. Existing environmental, social and governance (ESG) met- rics lack the consistency and comprehen- siveness required. The requisite changes in measurement and reporting of busi- ness performance calls for corresponding changes in macro-level reporting and alternatives to GDP.


Business and economic success has become decoupled from social success in terms of well-being in thriving sustainable societies. The decoupling is the result of a systemic failure – a system designed to prioritize financial and economic performance no longer operates successfully and sustainably in a world that has been utterly changed by the globalization-technology-financialization nexus. We have an extraordinary opportunity – and responsibility – to reorient our market economies to intentionally serve the interests of the societies within which they operate, to reflect the interests of broader stakeholders as well as shareholders, and to do so sustainably. This requires us to be very intentional about reflecting this objective in the elements of our economic and business models, which currently reflect the primacy of the financial. This applies to businesses, to governments, and to civil society. We must urgently recouple share holders, stakeholders, and society.

Recoupling shareholders, stakeholders and society


Colm Kelly, Global Purpose, Policy and Corporate Sustainability Leader, PwC , @ColmrKelly
Dennis J. Snower, President, Global Solutions Initiative, @DJSnower

The Global Solutions Initiative (GSI) is a global collaborative enterprise to envision, propose and evaluate policy responses to major global problems, addressed by the G20, through ongoing exchange and dialogue with the Think20 (T20) engagement group. The GSI is a stepping stone to the T20 Summits and supports various other G20 groups. The policy recommendations and strategic visions are generated through a disciplined research program by leading research organizations, elaborated in policy dialogues between researchers, policymakers, business leaders and civil society representatives.

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Colm Kelly

Colm Kelly

Global Corporate Sustainability Leader, PricewaterhouseCoopers International Limited

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Global Corporate Sustainability Managing Director, PricewaterhouseCoopers International Limited