Why S̶h̶a̶r̶e̶h̶o̶l̶d̶e̶r Stakeholder Capitalism might emerge as the new economic way forward
In the 1950s there was a popular management theory emerging. It was focusing on the needs of everyone rather than those of a select few. The increase in technology and connectives has also helped in the decrease in the prevailing ideology of putting shareholders above everyone else. It seems that after 70 years this theory is, once more, gaining traction.
It’s called Stakeholder Capitalism.
Stakeholder capitalism is a system in which corporations are oriented not only to serving their shareholders but also to serving the interests of all their stakeholders: customers, suppliers, employees, shareholders, and local communities.
Sounds utopic, right?
This was the norm in the past, especially in the US. That is until Milton Friedman argued that corporate executives are only beholden to owners (shareholders). Yet, the tide is shifting once more, and both companies and business leaders are now focusing on a potential return to stakeholder capitalism, which is currently prevalent in Europe.
Under the stakeholder capitalism system, a company’s purpose would need to be transformed to create long-term value and not to maximize profits and enhance shareholder value at the cost of other stakeholder groups.
But like all big things, they’re not always easy to do.
So how could we start moving towards stakeholder capitalism?
From the inside!
Although it might sound like personal development advice, companies can and are already finding opportunities within their organizations to change. According to the Harvard Business Review, there are four pillars of focus that might ease the way:
1. Measuring the right things
‘Evaluating an organization’s performance against the environmental, social, and governance (ESG) issues that are likely to affect the organization’s industry.’
2. Being a thoughtful voice for regulation
‘Business leaders must rethink their relationship to regulation. The accepted notion that regulation decreases competitiveness and is a drag on growth is too simplistic and short-term. In the long term, a habitable climate and peaceful society are the bedrock of an economic system that delivers prosperity.’
3. Painting an integrated picture for shareholders
‘Stakeholder capitalism can’t succeed if shareholders don’t see the value. In a stakeholder model, the measurement must be a team effort. While the CFO bears central responsibility for delivering financial results to shareholders, he or she will need support from the COO, CMO, CIO, and CEO to also articulate how working on ESG issues affect financial performance. Research is beginning to show clear value in this approach.
4. Taking risks
‘Stakeholders don’t expect you to have all the answers. But, they do expect you to get into the conversation. Engage in dialogue with customers, with peers, employees, scientists, activists, and investors about what’s happening and how it relates to your business. See the world through a variety of lenses as you determine the best courses of action. Then focus on some knotty problems and begin to experiment with solutions. Successful or not, be transparent. We all must learn together.’
The current challenges that we’re facing as a species, like the current COVID-19 pandemic, the global climate crisis, and the vast social challenges and inequalities should prompt us to act. Sooner rather than later. Especially since it’s within our power to do so.
There’s no better time to focus on changing things for the better than now. What do you think?