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Why consumers are not brand's stakeholders

Why consumers are not brand's stakeholders

It is slightly unorthodox to claim that consumers are not stakeholders. Is it not self-evident that someone who buys a product has some stake in a company that produced that product?

Not necessarily. If we scrutinize the situation from the point of value exchange, we see that markets are unique in the sense that their stakes are consumed (annihilated) through purchase. A person A has a stake in company B so long until person A consumes his stake through a purchase agreement. A stake is consumed through value exchange (money for product/service). Person A as a consumer might still be a stakeholder on many other levels, being an environmentalist, a member of a regulatory body, or even an employee, but as a consumer, he has lost his stake in product consumption.

Another way to understand the separation between markets and stakeholders is to place markets in the vision part of the brand formula and stakeholders in the mission part. Those from the vision part provide nutrition (money) in exchange for the goods produced by the brand/company. Those from the mission part (government, regulatory bodies, NGO, etc.) either consume brand externalia (by-products) or constitute input elements for product/service production (suppliers and employees for instance).

Yet another way to understand the difference between consumers and stakeholders is from the viewpoint of integrated reporting. Consumers are tied to financial capital only, while stakeholders are tied to all six capitals. In exchange for value (money) for value (goods) consumers directly refill financial capital that allows all other capitals to operate. And that’s it. Unlike financial stakeholders that are tied to financial capital as well, their stakes are not consumed by investment, for instance. All other stakeholders quite the contrary consume financial capital and then add value through their respective capital operations. The engine represented by the business model then exchanges values of other capitals for financial capital.

The recent CSRD directive about sustainable reporting touches on this issue with the request to report material aspects of the company’s business model. The request rightfully expects a company to report not only the internal material elements of a business model but also the upstream and downstream of its value chain. What I have explained so far is the logic behind the value chain that CSRD and ESRS  (European Sustainability Reporting Standards) do not conceptualize. It is not likely that the standard will explain business model logic since this logic cannot be standardized. That is why the Integrated reporting platform still represents the starting point of any reporting. 

Integrated reporting philosophy that rests on integrated thinking clearly states that it is a platform, a sort of mental tool. The philosophy behind implicitly accepts individualization even though it does not name it that way. That is why I upgraded the integrated model with the brand in the core of the system.

The materiality, which is so much emphasized by CSRD/ESRS can only be individualized and not standardized. For that reason, the so far defined standards as general or even industry-specific cannot even in principle satisfy the valid expectations to report the materiality issues of each individual company. As much as each company must define its specific reasons for success (sustainability), it must define its own materiality and value chain. ESRS standards are a good starting point to reflect if they really are part of the company’s own materiality, but the definition of particular materiality only starts there not ends.

Coming back to stakeholders and consumers, each company must dig into its specific stakeholder’s map with a deeper understanding of what role each stakeholder or consumer has in its own particular value chain. This post’s aim is to ease the first step, but as a generalized model, it cannot reveal particularities.

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