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Moderated by Alan Fung, this session’s speakers were Ahila Ganesan, Independent Non-Executive Director of Velesto Energy Bhd, and Jalalullail Othman, Independent Non-Executive Director of CIMB Islamic. Defining stakeholder capitalism, Ganesan said that it has been around for about 50 years, although it may have been known by other terms. “In layman’s terms, it’s about finding a win-win situation for all parties involved,” she said. “It’s (about) moving away from shareholder capitalism, looking at employees, and looking at a wider area of investors, vendors and the supply chain.”
It is also about looking at governments and communities that will be affected by the business and the natural ecosystem that supplies the business. Noting that from a sociological perspective, stakeholder capitalism was about community, Jalalullail said that it was sidelined for a time but got back on track in the 1980s, and was further endorsed by MNCs like Apple and JP Morgan which declared that while each corporation had its own objectives, they recognised the necessity of living in one neighbourhood with common values.
The diverse interests of different stakeholders are challenging to companies when it comes to adopting or implementing stakeholder capitalism. “Because we have Asian values, we prioritise unity,” Ganesan said. “It’s already ingrained in our culture. What may be tough is short-termism, where you need to achieve quarterly results.” This is challenging globally and could signal a reversion to shareholder capitalism, i.e., going from the ‘we’ of Asian culture to the ‘me’ more prevalent in individualistic Western culture.
Jalalullail remarked that although firms could buy into the concept of there being several stakeholders, they had to ask themselves who these were. “This is one idiosyncrasy of the (Southeast Asian) environment,” he said. “When it comes to balancing the various stakeholders, and clarifying who your stakeholders are, you have the challenge of a culture of paternalism, which is an unquestioning ‘father-knows-best’ attitude, and the government’s relationship with business (like government-linked companies).”
Fung said that while a mind shift from shareholder to stakeholder capitalism was necessary, another challenge was the possibility of overbearing leadership, such as the CEO or Executive Chairman of the firm, who essentially drives the agenda, not subscribing to stakeholder capitalism. In such cases, how could other board members, or risk practitioners balance things out? “There is no right way to do it,” Ganesan responded. “You need diversity, to be able to move away from patriarchy; you need younger people coming in who will question. You need to transition to questioning more.”
More questioning leads to better outcomes because more options are being tested out, she added, urging risk practitioners to look at scenario planning, identifying how things can go wrong because this can happen very fast, and using this to convince top-down drivers. “Even if companies are linked to the government and the government changes and has new priorities, you will still need scenario planning,” she said. “The data-driven, scientific way is to do scenario planning, to convince them to move in a certain direction.”
Fung suggested involving younger people in organisational decision-making to fill the leadership vacuum, particularly in middle management. “People in their 50s and 60s are saying “I cannot retire because there is no one to take over my job” – it is good to involve younger people and trust them to take over leadership positions,” he said. Jalalullail opined that business culture was changing, and government involvement may not necessarily be a bad thing. “The value of the government (involvement) should not be dictated by the personalities in government,” he said.
While entrepreneurial individuals and strong characters are not only expected but necessary, changing their mindsets was not about to happen overnight. “How do you convince a strong leader to change his or her ways, especially when you are lower in the hierarchy?” he queried. Professionals should be accepted into family-driven, paternalistic organisations, Jalalullail responded. “If you look at conglomerates that started out as family companies, their second, third and even fourth generation members have become professionals,” Jalalullail said. “It’s a conscious step by families to do this.”
Agreeing that governments need to be involved, Ganesan said that a two-pronged, carrot-and-stick approach was necessary nevertheless because getting people to change mindsets and develop a compliance culture was difficult. “Government and regulators can be involved in coming up with regulations that provide the ‘stick’ for compliance with ESG,” she said, adding that companies could incentivise staff internally while governments could incentivise through tax breaks and grants, among others.
To a query on whether the emphasis on ESG has caused governance to move too far to the right at the expense of actually doing business, Jalalullail said it had not, in his opinion – but if it had, it was probably the only option it could take; the alternative being not to pursue governance at all. “The reason you may feel that the pendulum has swung too far to the right is because governance has not been done from a total DNA perspective,” he said. “It’s being done a little here, a little there. The playing field is not level, and when it is not level, you are not incentivised.”
How could boards and management be induced to prioritise risk management? Ganesan advised finding the correct balance between being agile as a business and moving towards new frontiers while knowing the risks and “going in with your eyes open, which is not easy.” She strongly advocated scenario planning but cautioned that the problems were huge. “The problems are not just geopolitical risks,” she said. “You also have issues like climate change and infrastructure that cannot cope with climate change, the shortage of food and water, among other things.”
Risk management is a top priority in Jalalullail’s organisation, he said. It is incentivised and on par with other income-generating divisions; risk culture is tailored and driven from a risk management perspective. “We emphasise the point that risk management will cover outcomes that are not financial,” he said. “Risk management doesn’t mean you don’t go out and do business; it doesn’t say that the less you lend the less risk you have. We find it very beneficial and have seen real, tangible returns. It is something that can and should be done.”
