Question

According to the article, the business roundtable came up with a declaration that “…companies should no longer advance only the interests of shareholders. Instead, the group said, they must also invest in their employees, protect the environment and deal fairly and ethically with their suppliers.” One argument for the new declaration is that actually investing in other stakeholders maximizes shareholder value. Explain in what way can investing in the environment maximize shareholder value

Answer 1

Generally, the investment in the environment and other stakeholders will not directly hit the shareholders value to increase.But INDIRECTLY, the investing in environment leads to the increase in goodwill of the organization as the perspective of the people towards the organization becomes more positive.

as we know the people are the customers/consumers of the products and services we provide, the customer base of the organization increases if the company maintains good standards and invest in the social causes like environment.

so, as a result of above reason, the revenue increases and thus the share holders value consequently raises.

One more advantage is that the Government/Regulatory authorities provide incentives or any other support to the organizations who are investing in the environment and taking responsibility towards society.

any other support includes preference in government contracts, license approvals

as a result the cash benefits and the business benefits would increase due to their support and hence the share holders value increases with it.

At the same way, investing in the employees would give boost to their working efficiency causing increase in the production capacity or quality work or efficient work.

And dealing fairly and ethically with suppliers would lead to cash benefits like discounts, credit period enhancements etc.,

So the statement "...invest in their employees, protect the environment and deal fairly and ethically with their suppliers" will lead ultimately to the increase in the shareholders value. it is beneficial to shareholders if the stakeholders interest is taken good care of.