How Do Australian Listed Firms Create Value for All Stakeholders?

The debate over whether a firm should prioritise shareholders or stakeholders is longstanding. Recently, this discussion has been reignited due to the confluence of three factors. First, the pursuit of growth and profit maximisation has resulted in significant stakeholder harm, with investors becoming increasingly concerned about the risks to long-term shareholder returns. Second, the Australian government’s 2016 commitment to the United Nations Sustainable Development Goals emphasised the role of Australian businesses in achieving these goals. Third, in 2019, the United States CEO Business Roundtable and the Australian Stock Exchange on Corporate Purpose stressed the need for business to benefit all stakeholders.

Despite commitments from 138 of Australia’s largest firms to specific Sustainable Development Goals (SDGs), Australia’s performance has deteriorated against each goal. In 2022 Australia was ranked 13th by Gross Domestic Product but by 2023 was ranked 40th out of 166 countries on performance against the SDGs. This disparity between economic, social, and environmental performance has increased society’s expectation that business play a role in improving social and environmental outcomes.

Stakeholders are often cynical of firms' commitment to ambitious social and environmental goals and corporations’ purpose statements based on the evidence of significant harm from firms’ actions. The stakeholder theory literature emphasises that a firm creates the most stakeholder value through its stakeholder orientation and firm-stakeholder partnerships. The literature has contributed to the development of theoretical models but falls short in explaining how, in practice, large firms listed on stock exchanges can morpho-genetically change from shareholder primacy to a stakeholder orientation.

This research explores how firms listed on the Australian Stock Exchange (ASX) decide to make commitments to specific social and environmental goals and how their governance practices evolve to deliver on publicly declared commitments. Three distinct qualitative studies were developed to understand the influence of the industry sector, firm attributes, stakeholder orientation, and multi-stakeholder partnerships on strategic decision-making and governance practices. The first study incorporated 28 interviews with CEOs and non-executive directors of ASX200 firms and stakeholder organisations. The interview responses were triangulated with data from the ASX200 board charters and annual and sustainability reports.

The first study found that the greatest stakeholder value is created when a firm has a strong stakeholder orientation and a societal purpose. The strength of stakeholder orientation was observed to be embodied in five strategy, four governance, and three cultural practices, including effective partnering capability.

Study Two used social-network analysis to visualise the firm-stakeholder partnerships that aim to achieve specific SDGs and benefit target groups. Firms with a higher stakeholder orientation successfully partner with multiple stakeholders to achieve mutual goals, validating the importance of reciprocity and collective responsibility.

An additional question that emerged from Studies One and Two was whether a firm could change its stakeholder orientation to achieve its stated social and environmental goals. Study Three partnered with a large ASX firm’s board of directors and top management team to understand their decisions over nine years to improve their stakeholder orientation and achieve social and environmental goals.

The findings show that while some firms still adhere to shareholder primacy, most ASX200 firms are shifting towards stakeholder orientation. Notably, 67 of 195 firms have transformed their strategic decision and governance practices, embedding a stakeholder orientation. This cultural shift toward incorporating purpose into decision-making and values into governance practices holds the potential to create a more inclusive and sustainable business landscape, fostering optimism for the future. These findings provide new insights into corporate social responsibility and governance practices.