What is Stakeholder Capitalism?
Should we and can we make Stakeholder Capitalism a reality?
In our 2020 Forecast released in January, we wrote about the trend towards building “An Ecosystem Economy.” The more common term being used these days is “Stakeholder Capitalism.”
Stakeholder Capitalism was this year’s central theme at the World Economic Forum in Davos in January and the 2020 Davos Manifesto. Apparently, this isn’t the first time the Forum made such a declaration; the first manifesto in 1973 had similar intent.
To get a quick shorthand on Stakeholder Capitalism, here’s an outtake from the Davos Manifesto 2020: The Universal Purpose of a Company in the Fourth Industrial Revolution:
“The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large. The best way to understand and harmonize the divergent interests of all stakeholders is through a shared commitment to policies and decisions that strengthen the long-term prosperity of a company.”
And, here’s a good summary of Davos takeaways by Just Capital.
On February 19, I had the opportunity to attend a New America CA talk on “Stakeholder Capitalism: California’s Role in the Responsible Business Movement” hosted at Salesforce.
(*Moderator and speakers noted below.)
The speakers talked about a redefinition of capitalism with key themes not surprisingly centered around adjusting the value extraction to benefit more stakeholders, per the definition noted above. With regard to workers and society, the talk centered around equal opportunity, economic equality, and economic mobility. Sub-themes included quality of jobs, new models of business ownership including worker-owned frameworks, and equal access to capital. Around the environment, speakers noted that while we all should take actions to address climate change, the reality is that responsibility needs to be relative to our impact. Without large corporations changing behaviors, we won’t make a dent. Another theme, which will also show up below, is the importance of changing tracked measures based on the reality that businesses manage to what is measured.
To be sure, there are some that point out the flaws of Stakeholder Capitalism.
In this article, Steve Denning shares that Stakeholder Capitalism isn’t new and that the reason it was pushed aside to focus solely on Shareholders was because it was difficult to manage to multiple stakeholders. There’s definitely truth to that; I’ve seen in organizations that try to lead by purpose that there are often few internal guides that help leaders and employees make decisions to balance the complexity of meeting all constituents’ needs. Denning goes on to suggest instead to have a sole focus on the Customer, as Peter Drucker had advised: “There is only one valid purpose of a corporation: to create a customer.” While that is true and perhaps a better focus than Shareholders, it still doesn’t provide a framework around which other stakeholders are considered, despite even Drucker saying that those are factors to consider and address.
Or take some truthsayers who want us to know that there is a lot of work to be done to rethink our measurement systems and change CEO behavior.
Yes, true. Yet, we’re just at the start of this evolution, and there is the B Corporation option that has been showing us the way. And, there are large corporations that have bought into its approach. Take Danone, which has made a commitment to becoming B Corp certified and already has 17 entities and 30% of its sales under the certification. Unilever is another leader with brands such as Ben & Jerry’s. Perhaps it’s not surprising that these are European-based businesses. Europe has had a culture that considers its communities, society, and the environment more so than the U.S. But there are also some big U.S. companies that have B Corps. For example, did you know Gap Inc.’s Athleta is a B Corp.
Whether we take a Customer-centric view or focus on multi-Stakeholders, we need to rebalance towards a different objective, not one solely focused on Shareholders.
From the talk I attended, these were a few tips shared by the speakers for larger Fortune 500 companies to consider:
Put your purchasing power to work. Spend money with those companies that are focused on multiple stakeholders. Focus on being benefit optimizing rather than profit maximizing.
In trying to do the above, recognize barriers and then advocate for changing rules to break those barriers.
Judge the non-growth impact the company and its products have on society (e.g., think Facebook).
Change your focus towards long-term growth, not just short-term results.
Mandate diversity and inclusion to work towards more equitable distribution and solutions.
This January article, “Making Stakeholder Capitalism a Reality” from Harvard Business Review, makes these suggestions:
Measure the right things.
Be a thoughtful voice for regulation.
Paint an integrated picture for shareholders. (In other words, demonstrate the value of taking a stakeholder view and focus on the long-term.)
Don’t be afraid to take some risks [and learn together].
So, despite the debates about what to call it, where to focus, or whether or not we’re there yet, it’s undeniable that a shift around business objectives continues to take shape in the corporate world and with customers and consumers.
What’s more, it’s important to put energy towards how to manage against meeting multiple stakeholders’ needs and how to help internal teams know company priorities and how decisions should be made. As one of the above article references notes, it’s time to get into action and start supporting the best ways to implement a new business approach.
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* New America CA talk on “Stakeholder Capitalism: California’s Role in the Responsible Business Movement”
Jess Friesen, Director of Strategy and Operations, B Lab
Aneesh Raman, Senior Advisor, Economic Strategy and External Affairs, Office of Governor Gavin Newsom
Heerad Sabeti, CEO, Fourth Sector Group
Moderator: Autumn McDonald, Director, New America CA
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