Searching for the Moon

Shannon Clark's rambles and conversations on food, geeks, San Francisco and occasionally economics

Darci Riesenhuber on

Posted by shannonclark on May 13, 2005

tompeters! Guest Blogger: Darci

I added to this discussion about when a public company should take a position on social issues.

I posted about this a few times in comments on Robert Scoble’s blog and on my own personal blog (

I think that corporations whether small or large have a significent social responsibility. But even more importantly, corporations have to be consistent and transparent in their positions – when a corporation such as Microsoft claims one set of standards for internal behavior, but then shifts from those positions to a very different one in its external engagement – the message which is sent is one of great distrust, lack of leadership, and inconsistancy. Whether you are an employee, potential employee, business partner, customer or even a shareholder this is not what you (well at least I) seek in businesses. Consistency and transperancy allow me no matter what my relationship with the firm is to understand and make decisions based on clear choices – I want to trust that while a firm is doing and stating one thing it is not simultanously working at cross purposes someplace else.

I also think that as a society and as business people we are misunderstanding the structure of businesses and the relative importance of different stakeholders. Literature and the popular press typically focuses on the “shareholders” – often to the exclusion of all other stakeholders in a corporation. However especially in a firm such as Microsoft (with billions in cash/near cash assets and significent cash flow) shareholders actually should in many ways play only a minimal role in Microsoft’s business actions.

Why do I say this?

One, corporations care about their share price (the corporation as a whole, we’ll talk about individuals with stock or stock options in a moment) primarily only if the corporation is planning selling additional shares on the open market. Less often corporations may have financial instruments pegged to share price (bank covenents, listing agreements with markets) so corporations do care about some minimum per-share price. When a corporation is planning on using shares to purchase another party then the share price may matter, though again corporations often have many options to finance purchases.

For a corporation such as Microsoft they have cash on hand and if anything are a net purchaser of shares on the open market (to fulfill options issued to employees). Should they require financing, they have bond and bank recourses which they would use prior to the step of issuing new shares.

The power of shareholders at many firms is often overstated. Many firms, Microsoft included, have majority blocks of shares in the hands of a few parties (founders, large mutual funds, pension funds etc) These blocks frequently have sufficient votes to handle all but the most exceptional of occasions. Further, most shareholders sell shares of corporations they no longer believe instead of casting votes to encourage change.

The exception to this is employees and others who have restricted shares or who are holding options. They have a strong, personal interest in specific pricepoints for the shares and may (as in the case of shares held in 401k plans or restricted stocks) be limited in their opportunities to sell shares to express disagreement.

In short, I would argue that for corporations who do not expect to sell additional shares on the open market and do not expect to make significent acquisitions with stock, that they should take a longer horizon view.

As part of this they may as many firms are look at ways to also shift executives and employees away from short term, quarter over quarter share price connections and also tie their interests to long term success (cash bonuses, profit sharing, options and vesting tied to business performance etc).

Firms should also look directly at those stakeholders who will no matter the share price have a direct and immediate impact on the business – namely first the firm’s employees and secondly the firm’s customers, partners and suppliers.

If the firm can take steps and stands which will enhance opportunities and ease challenges faced by customers and by employees (i.e. in the recent Microsoft case making personal sexuality not a reason for discrimination in housing for example) then the firm will benefit by having more focused employees and more generally by lowering the challenges faced by customers.

At least that’s my view.



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