UK: IM Sounding Board - Improve the stakes for investors.

UK: IM Sounding Board - Improve the stakes for investors. - The current debate over the relative virtues of shareholder and stakeholder value is a necessary one. My experience - notably at Jaguar and the British Airports Authority - is that you cannot se

by John Egan.
Last Updated: 31 Aug 2010

The current debate over the relative virtues of shareholder and stakeholder value is a necessary one. My experience - notably at Jaguar and the British Airports Authority - is that you cannot serve the long-term interest of shareholders other than by satisfying and gaining the co-operation of all the stakeholders in the business.

The problem I inherited at Jaguar was straightforward. We were not satisfying our key stakeholder, the customer. By improving the quality of the product and its delivery, we changed that, dramatically strengthening the company and achieving the results to which we aspired. In contrast, BAA is accountable to a larger number of stakeholders. Acting at the interface between the public and private sectors, it applies private enterprise principles and skills to the management of national (public) assets.

Because BAA operates the gateways to the nation and handles about two-thirds of all those who enter and leave the UK, it is subject to considerable governmental regulation. Its business partners and employees have a genuine stake in the company and most of these employees are also shareholders.

Local communities, subject to the noise and extra surface traffic caused by airports, also have a stake and their cause is represented by planning authorities, which have considerable powers. So do the public, some 90% of whom will at some time experience our services.

At BAA, we give high priority to improving customer service, making our airports places that people enjoy, and committing ourselves to value-for-money shopping and high standards of catering. We poll hundreds of thousands of our passengers every year and have seen steadily increasing approval scores as we have responded to their comments and concerns. We have set out to establish genuine partnerships with the companies we work with, whether they be retailers, construction firms, or airlines, and try to share each other's problems and identify solutions that work for everyone.

We have worked to achieve an understanding with our employees, whereby we seek to avoid compulsory redundancies in return for their support for continuous improvement programmes and greater productivity.

The result of all this has been outstanding industrial relations, consistently improved productivity, and a continual increase in profits and earnings per share over 10 years since the company was privatised. In other words, by seeking to satisfy and work with our stakeholders, we have achieved a result for our shareholders.

The challenge we now face is to maintain growth as our airports rapidly become full. Heathrow is already handling 60 million passengers a year and is in overload. We are concerned that, apart from not realising the full capacity of the runways at the airport, the pressure on our terminals will ultimately affect customer service. Gatwick is handling 28 million passengers a year and needs to develop its capacity to 40 million. Stansted, currently handling seven million passengers a year, is seeking permission to double that capacity. All of this requires the permission of local planning authorities and, through them, the local community. To deny that our neighbours have a genuine stake in the company is to deny not only the reality of their lives, but also their ability to obstruct, delay and even stop the growth of our airports.

We have therefore made it our policy to try to grow with their trust and support, and have recently added that objective to our mission statement.

How can this be done? First, by listening to what they have to say, understanding their concerns, and seeking to address them in a practical way. We have dramatically reduced the noise footprint around Heathrow by encouraging the industry to use quieter aircraft, by the sophisticated use of noise preferential flight paths and by a wide variety of technical measures designed to reduce aircraft noise on the ground. We have also contributed to the costs of noise insulation for those most affected.

At the same time, we have acknowledged that we have to tackle the problem of surface traffic. The company is investing £650 million in public transport schemes. This investment is spearheaded by the Heathrow Express shuttle service, which will take 3,000 cars off the road every day. The Express is proving popular with passengers and will become profitable.

By setting out to address the concerns of stakeholders, it has been possible to achieve more than one objective and increase profits.

We have also established a programme called Contract with the Community, and we support local environmental, educational and employment activities through our own charity, the 21st Century Communities Trust.

To demonstrate the importance we place on all of these initiatives, we now publish simultaneously our annual report and an annual report on community relations and environmental performance, and we measure our environmental achievement against a set of challenging targets.

As a result, we have broad public support for expansion of Gatwick and Stansted, at least on the basis of the single runways there, and our opinion polls show two-to-one support for a fifth terminal at Heathrow. By establishing a proper dialogue with local communities, we have shown that they can, and will, support expansion.

The stakeholder concept has been challenged in a number of publications recently. As far as BAA is concerned, we cannot deny that employees, business partners, customers, the local community and the national authorities all have a stake in our activities and plans. It has to be in the shareholders' interests that we strike an accord with our stakeholders and obtain their co-operation and support.

What is the case for BAA is undoubtedly the case for many other companies, especially those, like BAA, that are privately owned but also affect, and are affected by, public policy. For such companies, the question is not whether we should choose between the stakeholder and the shareholder but how we can establish a rapport and an understanding with stakeholders to ensure that we can produce the results to which our shareholders aspire.

SIR JOHN EGAN

Chief executive of the British Airports Authority and companion of the Institute of Management

'The challenge we now face is to maintain growth as our airports rapidly become full. To deny that our neighbours have a genuine stake in the company is to deny not only the reality of their lives, but also their ability to obstruct, delay and even stop the growth of our airports'.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Subscribe

Get your essential reading delivered. Subscribe to Management Today