Poll: Which Stakeholders Do the Boards of Financial Firms Prioritize?

Effective corporate governance is, no doubt, an ongoing challenge among all companies but especially within financial firms. Conflicting incentives elicit stark agency problems among the various stakeholders. Of course, within financial firms, executives and their boards control virtually every decision the company makes, affecting multiple stakeholder groups.

In a poll conducted earlier this week in the CFA Institute Financial NewsBrief, we asked readers how they thought boards prioritized these various stakeholders.

Which of the following stakeholders do you think is given the highest priority by boards of financial firms when they make decisions?

Milton Friedman once stated, “There are four ways to spend money: You can spend your own money on yourself, you can spend someone else’s money on yourself, you can spend your own money on someone else, and you can spend someone else’s money on someone else.” Given that executives and boards operate within the province of spending other people’s money (either on themselves or other stakeholders), it is very telling when management does indeed emphasize other stakeholders. But, according to our poll results, this emphasis is something of a rarity.

According to 865 investment professionals, 65% cited executive management as receiving the top priority in decision making among financial firms, and only 2% believed customers were their top priority. Shouldn’t customers be first? Coming in second place were shareholders, at about 31%. Very clearly, our respondents view many financial firms as having, at a minimum, a perception problem as well as suffering from a fundamental misalignment of priorities.

Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.