Relationship Equity

Relationship Equity

Equity is a term that we have all heard of. To most people equity refers to an investment or shareholding in some company or business venture. The term equity can however be applied to anything that holds value. For the owners of a company the value of the shareholding would be the equity. If we consider the company to be a legal entity separate from the shareholders then we should also define what is the equity of the company. I think that “Relationship Equity” (RE) is the most important equity of a company. RE is what the company has invested in the relationship with its customers, employees, shareholders and other stakeholders. (In that order of importance). The customer is the most important stakeholder for a company followed by the employee and then come the shareholders and other stakeholders.

The problem with the traditional concept of the “Owner” leading and managing the company is that the shareholder’s equity (profit) is given first priority and since many a times there is a fundamental dichotomy between shareholder’s equity and company’s equity, the company loses out. Enterprise leaders with a long term vision understand that in order for the company to remain healthy it needs to have a strong RE and this in turn will also lead to long term profits for the shareholders. Every time the company’s leadership succumbs to the demands of the shareholders and gives priority to profits over the company’s RE the company’s interests are compromised.

The Chinese character “crisis” is made up of two characters. One representing  danger and the other representing opportunity. The coronavirus pandemic is indeed a global crisis. It is a time of great danger for every company but it also offers opportunity. What better time than now to build up the company’s RE with its two most important stakeholders? The customer and the employee. I will talk about the RE with the customer another time. In this article I would like to focus on the company’s RE with the employee.

In these uncertain times every company is vulnerable. When this storm is over there will be a different landscape. Many companies would have gone into bankruptcy and many millions of people in the world will be unemployed. It is a stark reality that everyone is bracing themselves for. But post coronavirus will be a different battle. We will fight that battle when the time comes. Right now we are collectively fighting a battle for humanity and how we fight this battle will be our legacy for the future generations. The RE of a company is like a bank account. We can make deposits and we can make withdrawals from it. Every time we lose sight of a customer’s legitimate claim or fail to look after the welfare of our employee or refuse to pay the legitimate dues of a vendor or contractor who is also suffering, we make a withdrawal from the RE account. If we are not careful we can end up making too many withdrawals which will take the account into the red and  just like a bank account further withdrawals will be refused. The corporate landscape of the world is strewn with failed and malfunctioning companies. A closer look at them will confirm that in many cases the cause of their malaise has been an overdrawn RE account.

By and large people have a good sense of judgement. Employees are no exception. In these difficult times any small gesture of generosity extended to them will be greatly appreciated by them and yield a bonus RE for the company. This healthy RE account will bring great success for the company and thus greater profits for the shareholders when things go back to normal after the coronavirus era. Adam Grant is a professor at Wharton Business School and his seminal book titled Give and Take dwells on the mystical philosophy that the more you give the universe conspires to give you back manifold in return. The book cites many living examples of such a phenomenon.

This battle against the coronavirus is the opportunity for every company to give. And who is more deserving than its lower level employees? Giving does not have to be irrational to the extent of jeopardizing the survival of the company. Small gestures like the human resource department of the company enquiring about the welfare of the employees and conveying a message that in case of any hardship or misfortune the employees should not hesitate to ask for help. The help needed could even be very simple like support to get admitted to a hospital or a small loan. Unfortunately the dichotomy of shareholder’s profit and the company’s RE may sabotage such a policy of the company.

I am firmly of the opinion that there is a difference in the role of the entrepreneur and the company’s leader. The two roles quite often have a conflict of interest. The entrepreneur’s role is to create new ventures; not to run the company in which he has a vested financial interest. It is vital that as soon as possible the company is left to be run by professional managers who give greater priority to the company’s RE than the shareholder’s equity. Every professional manager and organizational leader must remember that it is the company which employs him and pays his salary. Therefore in case of a conflict of interest between the company’s RE and the shareholder’s equity his loyalty must be to the company.

Comments (12)
  • Very astute observations here. This article is considering the harms of “shareholder supremacy” (also called “shareholder primacy”). Only recently has the business world come to the long overdue conclusion that shareholder primacy is officially dead.

    At its core, this is an issue of fiduciary duty (the obligation to act in the best interest of a party other than oneself). The board of directors is tasked with the management of the organisation. Every single managerial decision, without exception, should be informed solely by the goal of advancing the best interest of the corporation. But what really is the best interest of the corporation?

    The coldblooded capitalists of yesteryear have historically defined the best interest of the corporation as ‘shareholder wealth maximisation’. Let’s consider the faulty assumptions upon which this claim rests.

    First, let’s get it straight that ‘the best interest of the corporation’ is just that – the interest of the corporation as an entity in and of itself. The shareholders may benefit from the advancement of the interest of the corporation but these two concepts should not be conflated. Here’s a simple example to draw a distinction: A shareholder who is a dominant creditor may benefit from the liquidation of the company in which he/she holds shares! Clearly, the shareholders can benefit at the expense of the company.

    Next, let us consider that shareholders are generally interested in short-term gain whereas the corporation (as an independent entity) must necessarily be more risk averse in its orientation. The corporation is always the recipient of the punishment and/or benefit of continuity. Whereas a shareholder can screw over any other stakeholder and move on to the next, the same cannot be said for the company. The corporation must generate and even accrue RE with its stakeholders, over a lengthy (admittedly indefinite) time horizon.

    Because the shareholders of a company have their own interest in mind, there is a prima facie conflict of interest in allowing shareholders to manage the organisation (an exception to this is when the shareholder owns the entirety of the business). The conflict is between the interest of the shareholder and that of the corporation. This is the very reason why board of directors exist, with much of the management capacity being delegated to those individuals that can remain dispassionate (mostly because they don’t own stock).

    So now we have to ask the question, what is the goal of the board? How will we define ‘the advancement of the best interest of the corporation’? We know it isn’t shareholder wealth maximisation, so what is it? This is where there is some room for interpretation. Now I don’t have all the answers but I do believe that one of the indicators of achieving this purpose is when the management is focused on building RE with all the relevant stakeholders. It’s about time that we start embracing RE as a mainstream metric in assessing the efficacy of management!

  • Dear Sir,
    Think about the people that you have laid off just before the pandemic. The world has shut down, no new recruitment, no where to go for Job and cant even tell anyone. Recruitment of all the companies has been abandoned. With very limited in savings and in a very uncertain unpredictable situation, people like me is suffering financially and mentally. May Allah direct you always to right path before taking any decision. May Allah save people like me.

  • Very good content. We all should read the Article. This Article will help us lots. When anyone help you in your crucial time, definitely you will remember him foreve. We should focus to customers centricity than any other time. Thank you sir for guiding us always.

    • Dear Sir,
      I am very glad to read this article from a leader of Real Estate sector.
      We are waiting for more articles which will be inspired us in this situation.

      Sincerely
      S M Sumsuzzoha
      01712-924878.

  • Good thought, certainly rewarding.

  • RE is can also be monetized as shareholders wealth. In today’s market place capital and super technology are no longer a competitive edge, at least not for too long because these are easily accessible and performance of those are predictable under a set criteria irrespective of geographical locations. However, human resources are unlike hardwares do not predictably behave or respond in the same way in all locations and circumstances. Therefore, in a business the real difference is the value of human resource. Its the people, who are winning or losing results in the market place although competing companies are selling same products, services or solutions using the same technologies and infrastructures. Performance of human resource is driven by the company culture in which they perform either to the right or the wrong directions dependent on the values pursued by the companies and investment made to build the business on those values. Also extent of their commitments to which they uphold those values in a challenging and ever changing market environment. Saying from my own experience one of the core values of my company since inception is Compassion. Why Compassion? Because, compassion drives empathy and mutual respect as oppose to intolerance and abuse of positional authority, empathy connects people emotionally and promotes culture of team effort- ‘We not Me’. Thats why we tagged compassion directly to the employees performance evaluation. Great deal of emphasis is put while evaluating a team member’s performance on not only just what results but also HOW those results were achieved; the behavioural aspect of it-human interactions among the internal stakeholders as well as with the external ones. It took number of years to break it down in realtime in order to make a sense of it to the employees from top to the lowest denominators. What do we mean by compassion in our day to day operations and interactions with our own people, with our vendors, suppliers and our customers who are in overseas and most importantly the products we make that cater to a specific consumer segment in a market. Clarity is a most important element in the mix. Employees buy in to a concept and participate in the initiative through to it’s fruition when they see clearly what’s in it for them- the tangible values i.e individual and collective prosperity, health and safety and also the intangible values i.e. individual and collective work-life balance and wellbeing. It has to be practiced in way a that overtime it becomes a norm, easier and spontaneous because it make no business sense not doing it. And I believe this is how and where RE begins to contribute significantly to the the shareholders wealth by increasing the marketable value of it. I can tell from my firsthand experience it made my company better and stronger helped steady growth of the business. The growth is not just in financial terms but also the shared values and responsibilities. In an unprecedented situation like in the time Corona when the entire business world is grappling with a pandemic where all of us reeling from the fast and furious blow of it I can see resilience and hope in my people. I see driven by compassion they are in touch among themselves with vendors and suppliers and buyers thru phones and social-media, any available options and means of communication. I can see the RE is in motion empowered my compassion. Yet, inspired more by your write up Arshi I responded to an inner nudge and called my office co-worker who helps me with my lunch and coffee in a normal day and a vendor of office supplies to check up on them. They both were pleasantly surprised by my call and it was so obvious how touched they were I could almost see thru the phone. I’m a pathetically emotional person and it made me weep.
    PS: Errors and omissions may please be excused as I’m also a pathetic editor.

  • Dear Sir,
    ASSALAMUALAIKUM.
    At the prima facia I would like to thank you for your wonderful write up which is a we-must-expect kind of Token from a legendary Personality of the present Real Estate Industry. Unfortunately I didn’t get the opportunity to meet you physically but I am very much aware of your Mentoring Ability.
    With your welcoming and generous gesture I would appreciate an opportunity to discuss few important issues related to our Rral Estate Industry over a cup of Coffee or anything at your preferance
    To give ideas
    Your mentioned RE; Its’ past, present and Future adaptation and implications barriers and opportunities in respect to the present initiatives of the Succesful Entrepreneurshipsuch as BTI, BAY, ASSET,ASSURANCE, SOUTH BREEZE, NAVANA, RAMGS etc.

    There will be so many other issues to be discussed if you allow.

    After a long time I have become interested talking all these to a person who has made his position with clarity and thus created an opportunity for young followers to learn from the best.

    Thanks once again Sir.
    If you allow I can call and ask for your convenient time or u can @ +8801713006549

    Would like to beg sincere apology if anyway I did any mistake in expressing my thoughts as I RRALLY CNSIDER YOUNAS A HERO OF MINE AND A HERO OF THE INDUSTRY.

    WILL BE WAITING FOR YOUR ANSWER sir.

    Best wishes.

    Regards,
    M Delear Hossain//

    SAIFAN

    no is 01713006549

  • Salute you

    • An ignored topic for those who thinks only earn profit. But a path finding & successful leader like you can only think about topics like ‘RE’. I ‘m overwhelmed for now & always. I have not that courage to say thanks to you but this time I would like to say thak you sir for thinking about the topic.

  • Excellent article.

  • 1) We’re witnessing the collapse of the standardization model – the model of leadership based on command and control, hierarchy and silos.  2) Need a balance between standardization and personalization can exist. 3) We must shift from ruling by standardization to leading with personalization.

  • Excellent writing skills and equally excellent content!
    Kudos!

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