Oakmark is the mutual fund family launched in 1991 by Harris Associates, the Chicago deep-value firm founded in 1976 (about $105bn AUM). Bill Nygren runs the flagship Oakmark Fund and David Herro the Oakmark International Fund, buying businesses at large discounts to intrinsic value and holding them like owners — publishing quarterly fund commentaries, market commentaries and insight articles.
This report argues that treating employees, customers, and communities well doesn't have to hurt shareholders. Using examples like Best Buy, General Mills, and Bank of America, it shows that short-term spending—like raising wages or buying NFL tickets for marketing—can boost brand loyalty and talent retention, ultimately increasing long-term profits for shareholders. But there's a catch: if a company goes too far (e.g., raising hourly pay from $20 to $50), costs outweigh benefits, hurting both workers and investors. For everyday investors, the takeaway is to look beyond quarterly earnings and focus on companies that make smart, long-term investments in their stakeholders.
Oakmark's investment research report discusses the relationship between shareholders and stakeholders, with the core argument being that the two are not opposed but mutually reinforcing. The report cites the philosophy of "The Heart of Business" by former Best Buy CEO Hubert Joly, emphasizing that c
This chapter explores the relationship between shareholders and stakeholders, responding to the long-standing market view that the two are in opposition. Oakmark argues that this debate stems from a confusion between short-term profits and long-term value maximization, and that the core of corporate governance lies in balancing the two to achieve sustainable profitability.
Oakmark’s central thesis is that the interests of shareholders and stakeholders are not opposed but mutually reinforcing. A company can achieve sustainable profitability—and thereby maximize shareholder value—only by treating employees, customers, suppliers, and communities fairly. This view runs counter to market consensus, as many investors still believe that sacrificing short-term profits to benefit stakeholders harms shareholder returns.
1. Historical Context: From 1997 to 2019, the Business Roundtable supported Milton Friedman’s view that “the only social responsibility of business is to increase profits.” In August 2019, 181 CEOs updated their statement, committing to create value for all stakeholders—a move seen as a rebuttal to Friedman. Oakmark believes this shift does not negate shareholder value but redefines the path to achieving it.
2. Case Studies:
3. Data Comparison:
| Case | Short-Term Cost | Long-Term Benefit | Impact on Shareholders |
|---|---|---|---|
| General Mills buying tickets | Reduced current profits | Enhanced brand loyalty, employee morale, customer acquisition | Long-term shareholder value increased |
| Bank of America wage hike | Increased wage expenses | Lower employee turnover, higher productivity | Long-term profitability enhanced |
| Cutting R&D/advertising spend | Short-term profit rise | Sales decline, business value erosion | Long-term shareholder value damaged |
4. Research Process: Oakmark incorporates factors such as customer satisfaction, employee turnover, supplier financial health, and community relations into its valuation models, ensuring valuations are based on recurring earnings rather than one-time profits.
This chapter further substantiates the core proposition that "maximizing shareholder value and maximizing stakeholder value are two sides of the same coin." The report cites the world's largest market-cap companies—Apple, Microsoft, Alphabet, and Amazon—as examples, arguing that these companies create the greatest shareholder value precisely because the market expects them to create the greatest value for society. By reviewing Oakmark's historical investment case in Thermo Electron, the author demonstrates that there is no fundamental conflict between the two under a long-term perspective.
The author contends that the so-called "debate" between shareholders and stakeholders is essentially a false dichotomy. When examined over a sufficiently long investment horizon, maximizing social value and maximizing corporate value are different facets of the same process; the starting point of decision-making may differ, but the end result converges. This judgment stands in stark contrast to the market's prevailing perception that the two are a zero-sum game.
| Company/Asset | Role | Key Data | View |
|---|---|---|---|
| Apple | One of the largest market-cap companies | Specific market cap not disclosed | Positive case: unity of social value and shareholder value |
| Microsoft | One of the largest market-cap companies | Specific market cap not disclosed | Positive case |
| Alphabet | One of the largest market-cap companies | Oakmark Fund holds 3.7%, Oakmark Select holds 9.6%, Oakmark Global Select holds 12.3% | Positive case |
| Amazon | One of the largest market-cap companies | Specific market cap not disclosed | Positive case |
| Thermo Fisher Scientific | Long-term investment success case | Market cap exceeded $200 billion (as of September 30, 2021) | Positive case: significant returns from long-term holding |
| Thermo Electron | Historical holding (merged) | Held by Oakmark Select in the 1990s | Author admits selling too early; long-term holding would have yielded better returns |
1. Extend the Investment Horizon: The report implies that most investors' time frames are too short to capture the long-term returns of stakeholder-oriented expenditures (e.g., R&D). Investors should focus on companies willing to sacrifice short-term profits for long-term value.
2. Identify the "False Debate": The market's binary discussion of "shareholders vs. stakeholders" may create pricing errors. Companies perceived by the market as "overly generous to stakeholders" but whose actions are economically rational over the long term could present value investment opportunities.
3. Focus on Corporate Governance Structures: The Thermo Electron case shows that complex but reasonable corporate structures (e.g., financing through IPO of partial stakes) may be undervalued by the market. Such structures, if serving long-term value creation, warrant in-depth analysis.