Market capitalisation has little to do with bottomline: Expert

New Delhi, Jan 1: Market capitalisation in the 21st century might have little to do with profit but much more with how a corporation impacted the people and plants, according to a leading management expert.

“In the first six months of 2000, biotech firms raised $20 billion on stock market to finance research in genomics with related revenues not expected for many years,” Institute of Directors’ (IOD) Madhav Mehra said here.

Companies were selling equity stakes in good ideas and using the capital to implement the ideas. With onset of a new economic system based on knowledge rather than capital, the conflict between business, state and stakeholders could be resolved by viewing each of them as partners who create social and economic value through collaborative problem-solving, he said.

“In the past, the focus was on enhancing shareholder value. Now it is on engaging stakeholders for long-term value creation. If in the past, corporate social responsibility was simply seen as profitability plus compliance plus philanthropy, now it means companies are more aware of understanding societies in which they operate,” Mr Mehra added.

He cautioned that it did not mean shareholders were not important, or that profitability was not vital to business success. But that to survive and be profitable, a company must engage with a range of stakeholders whose views might vary greatly.

Citing a study, he said social performance was not often measured, stakeholders were rarely represented on the board of directors and the needs of some groups were frequently ignored.

Mr Mehra said managers increasingly engage employees involving problems in business because it is estimated that employee knowledge comprises 70 per cent of all corporate assets and in many cases, people were organised into complete self-managed business units, which are held accountable for performance and left free to choose their co-workers, methods, suppliers and other aspects of work.

He cited this practice at global computer major Hewlett-Packard. At Dell Computer, he said, direct sales strategy eliminated sales people, inventory and retail stores, while delivering customised PCs at discount prices.

On collaboration, he said, it had been proven that cooperation between shareholders and states could raise the value of corporation several fold.

“Business does not simply redistribute resources resulting in a zero-sum game but is inherently a production institution that creates values for all its constituencies,” he said, adding that
stakeholders were the integral part of the extended corporate community.

— PTI