Stakeholder Capitalism: A Primer

By Bruce Bolger 
 

People are dissatisfied with business. According to Gallup, US and worldwide engagement is at record lows, with an estimated trillions of dollars of waste worldwide. American Customer Satisfaction Index surveys find little improvement over the "C" grade the average major companies have received for decades. Gallup surveys also finding growing acceptance of Democratic socialism among younger people especially, and declining support for capitalism. 

The state of people management today mirrors that of quality in manufacturing in the last century when US companies simply buried piles of waste into their bottom lines until pressure from the quality-conscious Japanese forced US automakers and others to change their ways. Today, change will be driven not only by competitive pressures but by the increasing ability of investors to evaluate the enormous waste in people management. 

Many business leaders quietly believe there is a solution to the people problem that requires no sacrifices from shareholders or CEOs or intervention from government and which creates value and better experiences for everyone. Stakeholder capitalism is a growing worldwide reform movement dating back at least 70 years that focuses on enhancing returns for investors only by creating value for employees, customers, supply chain and distribution partners, communities and the environment. It is based on both research and common sense that organizations can do well by shareholders by harmonizing the interests of all stakeholders toward a common purpose, goals, objectives, and values. It should not be confused with "woke capitalism" or Corporate Social Responsibility (CSR), which often are the equivalent of "greenwashing." In fact, the virtue signaling and greenwashing associated with the term stakeholder capitalism in the early 2020s helped set back a practical business movement established by business innovators, management consultants and academics long before the concept of ESG (environmental, social, governmance) took shape. Because true stakeholder capitalist companies such as Costco, Delta, Nucor Steel, Texas Roadhouse, Chick Fil-A and others view its practice as a competitive advantage, they almost never brag about it. 

In decades of literature on the subject of stakeholder management, one won't find any advocating for organizations to address social or environmental issues outside of their core purpose, unless such issues are their purpose--except for a commitment to not offloading costs on to society in the form of mistreating customers, employees, distribution and supply chain partners, communities, or the environment. The moralizing arose in the early 2020s when leading companies embraced the term in corporate communications without any concrete action, fomenting skepticism and opposition from both the right and the left. 

An analysis of the field's history below demonstrates that rather than an ideology, stakeholder capitalism is a management system, time-tested in total quality management practices around the world. With origins from some of the same thought leaders as total quality management, it is in this case applied to creating enhanced value from the 80% of the typical organization's balance sheet generally allocated to people in the balance sheet catch-all of "good will." Stakeholder management is designed to enhance both financial performance over time as well as experiences for all stakeholders, and there ample research demonstrating that organizations with highly engaged stakeholders often outperform their competitors in the marketplace. In fact, the analytics team at J.P. Morgan published an independent analysis of the Human Capital Factor (HCF), an analytics-based framework created by Irrational.Capital to predict enhanced future value creation. It confirms that organizations run with high HCF scores benefit from an alpha of at least 4% per year over market benchmarks. A recent study by the Said Business School at Oxford University on the impact of employee well-being on stock prices comes to a similar conclusion.

The field of stakeholder capitalism faces a fundamental challenge: the lack of a formal definition. Anticipating the difficulty of debating a field without a clear definition, the Enterprise Engagement Alliance in 2020 set out to create a formal definition that would reflect common usage in the nearly 70 years of literature in its stakeholder management library. In consultation with Alex Edmans, Professor of Finance at the London Business School, and Martin Whittaker, CEO, Just Capital, a New York-based stakeholder capitalism advocacy organization, it created this definition published in August 2020 in Forbes: "Enhancing returns for investors only by creating value for customers, employees, distribution and supply chain partners, communities, and the environment." This primer demonstrates the extent to which definitions can affect a debate. 

Another fundamental reason why the field has failed to advance comes from the economist Milton Friedman: "If investing in employees increases long-term shareholder value, that's not corporate social responsibility—it's simply good management." The leading proponents almost never publicize their strategies and practices, as they view them as a competitive advantage. 

Stakeholder capitalism was not conceived of in 2019, as some believe, when the Business Roundtable updated its charter of the organization to address the needs of all stakeholders. Based on the timing of the announcement during a period of heightened social tensions, and with little sign of subsequent concrete action, the statement was viewed as little more than a press release and gave rise to a backlash from the right and the left.

In fact, stakeholder capitalism principles predate the Business Roundtable pronouncement by decades. The origins of the movement have nothing to do with corporatism, statism or Democratic Socialism, as claimed by opponents. In fact, it originated from practical business practices going back to the 1940s in the world of management consulting through the work of Peter Drucker as early as the late 1940s and by the total quality management legend W. Edwards Deming starting in the 1950s. In the 1960s, the Stanford Research Institute appears to have introduced the term stakeholders in its research. The World Economic Forum embraced the principles, in theory at least, upon its formation in 1973 with the Davos Manifesto, stating that companies should harmonize the interests of all stakeholders. The concept, framework and terminology was introduced into the academic arena in 1984 with the publication of Strategic Management: A Stakeholder Approach by R. Edward Freeman, a Professor of Administration at the Darden School at the University of Virginia. The book remains in print. The book does not advocate that businesses make donations to social causes. It argues that stakeholders are in fact the primary source of value creation for shareholders and that the best organizations harmonize the interests of all stakeholders toward a common purpose. 

Since the publication of Freeman's book, the principles have gradually gained ground. 

• In the early 1980s, Costco and Whole Foods, two early practitioners of stakeholder capitalism were founded. Herbert Kelleher took over Southwest Airlines in that period leading with a people-first strategy. 
• In 1987, the Malcolm Baldrige Quality Award was created by Congress to recognize organizations demonstrating exceptional results through leadership, strategic planning, customer focus, workforce engagement, operations excellence, measurement and analysis, and continuous improvement, the basic principles of stakeholder capitalism. 
• In 2004, over a dozen investment firms created the United Nations report, Who Cares Wins, helped coin the term ESG. The work focuses on how organizations can enhance value and capitalism through sustainable practices, with no talk of contributing organizational resources to social causes.
• Conscious Capitalism, one of the earliest proponents, founded in 2007, by John Mackey of Whole Foods fame, continues to quietly grow, with chapters around the world. 
• B Lab, another early adocate founded in 2007, now has over 10,000 companies certified in its stakeholder capitalism principles worldwide.
• In 2010, the academic Stakeholder Strategy Interest Group was founded in the Strategic Management Society, an international group of professors. 
• The Shared Values movement officially founded in 2011, has many worldwide proponents.
• The International Organization for Standardization has embedded stakeholder capitalism principles in all of its process management standards, starting in 2012. 
• The influential JUST Capital advocacy group founded in 2014 by hedge fund investor Paul Tudor Jones II, has created a benchmarking service for top companies and helped found the JUST Capital ETF managed by Goldman Sachs. 
• The Embankment Project founded in 2016 by the Rothschild family, EY, and others, which is now the Coalition for Inclusive Capitalism, remains in operation with support from the Vatican. 
• In 2018, Sen. Elizabeth Warren, Sen., Mass., introduced the Accountable Capitalism Act, which would add new disclosure requirements and management commitments. It was dead on arrival with widespread opposition on the right. 
• In 2019, the Business Roundtable updated its charter to pledge that member companies commit to leading their companies for the benefit of all stakeholders — customers, employees, suppliers, communities and shareholders. It spawned a controversy that arguably set stakeholder capitalism back by five years. 
• The Economics of Mutuality Foundation, a group formed by the Mars family in 2020, has created an investment fund to support stakeholder-oriented companies, and another group to support education outreach activities. 

In 2022, the European Union upped the ante on stakeholder capitalism principles through the passage of its Corporate Sustainabilty Reporting Directive, which requires up to 10,000 companies worldwide, and at least 300 of the largest US companies, to disclose detailed information on employee turnover, safety, diversity, pay equity, and more, as well as the employee management practices of their supply chain and their practices related to customers and communities. The law was recentlly updated to apply organizations that do business in or with EU companies with more than 1,000 employees, ar at least 45 million euros in annual sales. It requires companies to file detailed, audited human capital practics and analytics affecting their employees and those of their distribution and supply chain partners, as well as equally detailed information on customer and community engagement practices and metrics, and the environment. According to Carmen Lu, Counsel, ESG, for New York-based Wachtell, Lipton, Rosen, and Katz, when the law was passed, "I think we are experiencing a kind of key inflection point in the shift to stakeholder capitalism. The movement has been going on for many years but with the rise of ESG and now the CSRD law, corporations will be forced to make the shift." She believes that US companies and those around the world that wish to do business in the EU or with large EU companies will have little to no recourse in local courts if they do not want to comply with the disclosures." 

On the other side of the debate, governors in Texas, Florida, Louisiana, and other states have drawn attention to stakeholder capitalism through their proposed measures to curtail state pension funds from investments that promote or support ESG (Environmental, Social, Governance) practices, often associated with stakeholder capitalism. Nineteen states formed a coalition to oppose ESG investing. Sen. Pat Toomey, R., PA., made news by requesting detailed information of standards from more than a dozen ESG ratings firms. Writing in opposition to stakeholder capitalism in multiple publications and cable media platforms, a former health care entrepreneur, asset manager, and former Republican presidential candidate Vivek Ramaswamy, now candidate for Ohio governor, has written, without reference to any formal definition, that “stakeholder capitalism refers—or at least used to refer—to the idea that companies should serve not just their shareholders, but also other societal interests." 

For those following the topic of stakeholder capitalism as of mid-2026, there remains talk of stakeholder capitalism in some business circles, but ask the average business person or American citizen if he or she has heard of it, and the usual response is "no," "sort of" or "maybe." Despite references to stakeholder capitalism in the New York Times, Fortune, Forbes, the Economist, Financial Times, and on CNBC, Fox News, in some academic journals, the debate around stakeholder capitalism rests largely below the public radar. While President Trump has rarely if ever mentioned the term, the tenor of the new administration regarding ESH has cast a pall on any use of the phrase, even if companies committed to its principles, such as Costco, Delta Airlines, Wegman's, Nucor Steel, etc., remain committed to the principles. After the second Trump administration began, Tthe term vanished from the web site of the Conference Board, a leading business organization, that at one point dedicated a learning center to the field.

The debate surrounding stakeholder capitalism is based almost entirely on how it is defined. A major problem with stakeholder capitalism is that there is still no official definition. Certainly, it cannot be defined simply by the vague terminology in the Business Roundtable press release of 2019, which reportedly was based loosely on the early consulting work conducted by R. Edward Freeman. But what does it mean to address the needs of all stakeholders? Is it about harmonizing the interests of all stakeholders toward a common purpose, goals, objectives, as Drucker, Demings, and Freeman have articulated? Or is it about trying to balance the interests of all stakeholders happy,and support social causes, even if at the expense of shareholders? The trouble is that opponents almost universally embraced the second definition based almost solely on the Business Roundtable announcement and other corporate pronouncements at the time, without conducting any research into the history and practice of stakeholder capitalism. As detailed below, opponents seem determined to make their definition stick. 

The Case for "Good" Capitalism 

The EEA does not contest the case of opponents to stakeholder capitalism, especially because opponents supports the EEA's definition. We contest the definition used by the opposition. If organizations are indeed guilty of green washing, virtue signaling, or of trying to collude against the interests of investors to promote left- or right-wing causes, we oppose that too. Our case rests on the authentic origins of stakeholder capitalism rather than on a definition fabricated based on little more than several press releases. If indeed stakeholder capitalism is good capitalism, the focus should be on implementation, not nomenclature debates. 

As outlined above, the EEA contends that stakeholder capitalism has its roots in the work of Peter Drucker, W. Edwards Deming, the World Economic Federation, the work of R. Edward Freeman and other academics, and the practices of thousands of companies around the world. 

When implemented as part of a strategic and systematic process, investing in people has a clear return-on-investment. In 2022, the Barron's List of Sustainable Companies outperformed the stock market for the fourth year in a row. Similarly, the JUST Capital ETF, managed by Goldman Sachs had outperformed the Russell 1000 benchmark. It tracks companies based on the priorities of Americans surveyed annually on their priorites, which include: workers, prosperity, and the planet. Both funds are following a similar trajectory as the six-year Enterprise Engagement Alliance Engaged Company Stock Index study conducted by McBassi & Co., publisher of Good Company. Between 2012 and 2018, when the study was ended, the ECSI outperformed the S&P 500 by over 37%. The ECSI tracked the stocks of about 40 companies with high levels of customer, employee, and community engagement using metrics from 13 independent sources. Alex Edmans, the Grow the Pie author, shares his research of "100 Best Places to Work" companies and found they consistently outperformed market returns over more than two decades. His findings recently were confirmed by other researchers. Click here for a library of other research studies on the return-on-investment of stakeholder management principles.

More recently, as outlined above,  the analytics team at J.P. Morgan published an independent analysis of the Human Capital Factor (HCF), an analytics-based framework created by Irrational.Capital and a study by Said Business School at Oxford University identify a clear connection between engaged employees and financial outcomes. 

It is just good capitalism. Terrence Keeley of 1PointSix, an ESG advisory firm, writing in an October 2022 Fortune article, quotes a conversation with Milton Freidman in which the economist says that he unhesitatingly agrees with the concept of Conscious Capitalism as espoused by John Mackey, Whole Foods Founder. “The differences between (us) regarding the social responsibility of business are rhetorical. Strip off all the camouflage and it turns out we are in essential agreement.” In fact, Freidman is specific in his 1970 New York Times magazine article stating that the corporate responsibility of a company is to make money ehtically. Is it ethical to offload or "externalize" on to society the costs of underpaying people, misleading consumers, leaving abandoned buildings, or polluting the air and water, or discriminating against people? 
 

Stakeholder capitalism, ISO standards and advocates for addressing the needs of all stakeholders base this conviction on the principles supported by research and logic that organizations will achieve greater and more sustainable results by systematically engaging all stakeholders in the mission than if they apply an ad hoc, reactive approach to the interests of people. This systematic and proactive approach was applied to tackle the severe manufacturing quality program in US industry during the 1970s and 1980s. Greater prosperity and improved experiences for all stakeholders is a virtuous byproduct of this approach, not its sole purpose, for without profits there are no resources for investment. Companies run this way actually comply with Milton Friedman's focus on the shareholders, but in a more sustainable manner than the short-termism that often results from efforts to maximize shareholder value at the expense of other stakeholders or longer-term risks. To our knowledge, Friedman did not specify the type of investor whose needs should be addressed, those looking for the short- or long-term gain and at the expense of what future cost to shareholder value?

Ironically, many Republicans have supported stakeholder capitalism principles by signing into law in their states statutes for "public benefits corporations". Unlike traditional organizations, "whose primary interest is maximizing shareholder value, public benefit corporations balance stakeholders' pecuniary interests with the interests of those who are involved and affected by the corporation, such as employees and customers, as well as the advancement of their intended public benefit goal," according to a definition from Cornell Law School, which closely aligns with the general definition of stakeholder capitalism. In fact, 19 Republicans, including Mike Pence, Sam Brownback, Rick Scott, and Nikki Haley all signed into law such statutes in Red states, along with 17 Democrats and one Libertarian in Blue states.

Even prominent shareholder capitalists and conservatives have shifted their views. In the documentary "Fishing With Dynamite," Michael C. Jensen, Professor Emeritus of Harvard Business School, since deceased, says: “Maximizing shareholder value is a stupid idea. Stop it! And it will impose costs on you, the person who’s trying to maximize the value.” He notes that all stakeholders need to be considered “with integrity,” and that the consequences didn’t occur to him and his coauthor at the time of his fame in business academic circles in the late 20th century. He does, however, accept blame, noting that “we’re all going to make mistakes.”

 Arthur C. Brooks, a Harvard professor and social scientist agrees. “The best organizations, the best societies, the best-run companies, the healthiest families—what do they do? They look out for each other. They think about what everybody needs. That’s what going on in good organizations.”

[return to top]

 

Below is a list of people and organizations who have over the years promoted the principles of addressing the needs of all stakeholders in the formulation and implementation of organizational management strategies, mostly at a practical level for their employers and/or clients or in the academic arena. Stakeholder capitalism and the field of enterprise engagement are not to be confused with tactical strategies related to employee and customer engagement or experience. Therefore, many worthy advocates for employee and customer engagement are not included in the list below unless their work focuses on the alignment of these activities toward a common organizational brand, purpose, and objectives. If we have missed anyone, let us know.

 

The concept of addressing the needs of all stakeholders so well articulated by Edward W. Demings' "14 principles" published decades ago, is unique in that it focuses on having a strategic and systematic approach to engaging and enabling all stakeholders in a way that fosters alignment and eliminates the silos so prevalent in most organizations. While every organization needs specialists in employee and customer engagement, a key principle of stakeholder capitalism is that the CEO and C-suite will achieve better results in terms of sustainable performance and better experiences through the application of a strategic and systemic approach to aligning all interests toward common goals. 

 

Although most of the people and organizations selected for this list have not or might not call themselves proponents of stakeholder capitalism, the principles stated or demonstrated in their research, work, or the nature of their business emphasizes the importance of a strategic and systematic approach to addressing the needs of all stakeholders that is the foundation of stakeholder capitalism and which to this day remains siloed at most organizations. While the world's business leaders only recently discovered these principles, the people and organizations below worked to develop the framework for their practical application, even if the term remains unknown to many. 

The people and organizations below are listed in an approximate timeline. Please note that there are too many CEOs who have practiced stakeholder capitalism principles over the decades to name, so we have highlighted a few of the most notable advocates. Few are known to have used that term as a way of describing their business practices.

Peter Drucker. popular 20th-century management consultant and business author whose set of tenets included a focus on “customer satisfaction, employee engagement and development, innovation, social responsibility and financial strength,” the foundational principles of Stakeholder Capitalism.

 

Edward W. Deming. The quality management guru’s “14 Points for Management,” published in 1982, called for organizations to address the needs of all internal and external customers (what today we call stakeholders) to achieve quality management goals. There are references to these concepts in his work as early as the 1950s. 

Stanford Research Institute (now SSRI.) Published a paper in 1963 that contains an early discussion of stakeholder thinking.

 

Klaus Schwab.  The Founder and Executive Chairman of the World Economic Forum may be among of the first people to use the term Stakeholder Capitalism about 50 years ago. WEF recently updated its original Davos Manifesto to clearly advocate for business strategies that address the needs of all stakeholders. The Davos Manifesto published in 1973 is among the first formal expressions of this approach to business. 

Tom Peters. His book, “In Search of Excellence,” also published in 1982, touted a leadership style based on the Seven S Framework, including: "Strategy, Structure and Systems, and Staff, Style, Shared Values and Skills."

R. Edward Freeman. His book, "Strategic Management: A Stakeholder Approach," promoted the benefits of addressing the needs of all stakeholders, a concept that came to be known as Stakeholder Theory. 

Charles Handy. As represented in his recent New York Times obituary, he entered the public arena in the 1980s advocating for a more humanistic capitalism. 

 

Leonard Schlesinger and James Heskett, Harvard Professors, whose research on the Service Value Profit Chain was among the first to identify the link between customer and employee engagement and organizational results.

United Nations Global Impact "Who Cares Wins" Study, published in 2004, which advocates for investors, company, and regulators to address environmental, social, and governance factors in their investments and business practices. 

Marcus Buckingham and Curt Coffman. Their best-selling book, “First Break All the Rulessold millions of copies since being published in 1999 advocating, among other groundbreaking principles, that organizations could achieve better results by better engaging managers and employees in organizational goals. (This is perhaps one of the highest-selling business books whose wisdom remains rarely applied.)

 

The Gallup Organization at Gallup.com. A fundamental principle of the company’s concept of Human Sigma is that “employee and customer experiences must be managed together, not as separate entities.” 

John Mackay and Conscious Capitalism.  The founder of Whole Foods built its success on the principals of stakeholder capitalism displayed throughout each location in word and image. 

The Forum for People Performance Management and Measurement, a research group at the Medill School of Marketing Communications from 2001-2009, that undertook multiple research studies indicating the link between customer and employee engagement and financial results.

B-Lab. An organization that audits and certifies sustainable companies, founded in 2007. It helped promote the establishment of public benefits corporations in the US and abroad. 

 

McBassi & Company and Laurie Bassi. Bassi's company created the Good Company Index that tracked organizational results based on the level of customer, employee, and community engagement. Her company created the Engaged Company Stock Index for the Enterprise Engagement Alliance at TheEEA.org that outperformed the S&P 500 for six straight years.

 

The Enterprise Engagement Alliance at TheEEA.org. This organization was founded in 2009 by Bruce Bolger to help create a formal approach to achieving organizational results by fostering the proactive involvement of all stakeholders. It’s books, “Enterprise Engagement: The Roadmap,”  and “Enterprise Engagement for CEOs,” focus specifically on a practical approach to achieving organizational goals based on a strategic and systematic approach to engaging all stakeholders.

Shared Values Movement formally founded in 2011 by Michael Porter and Mark Kramer. 

 

ISO (International Organization for Standardization.) The IS0 Quality People Management principles published in 2012, and the Annex SL and ISO 10018 quality people management standards, provide a framework for achieving goals by addressing the needs of all stakeholders in a systematic way. ISO 30414 human capital standards published in 2020 provide a framework for effective employee management and reporting. 

 

Inward Consulting and Allan Steinmetz. Steinmetz, formerly an advertising executive, was another early pioneer in the concept of connecting employee and customer engagement through his advisory company, Inward Consulting, founded over 20 years ago. 

 

JUST Capital at JustCapital.org and its founder Paul Tudor Jones II. JUST Capital is an outreach group formed specifically to advocate for what it now calls Stakeholder Capitalism. Separately, it created the first Exchange Traded Fund based on the work of Laurie Bassi's Good Company Index, which, at least before the March 2020 meltdown, was outperforming standard stock indices.

 

Larry Fink and Blackrock. The chairman of one of the world’s largest investment companies was one of the first business leaders to support a more sustainable form of capitalism. 

 

Calvert. This is one of the first leading investment firms to focus on Environmental, Social and Governance investing.
 

Denise Yohn. This former marketing executive is one of the first-known brand specialists focusing on the importance of linking the customer and employee experience.

 

Business Roundtable at BusinessRoundtable.org. This coalition of about 180 of the world’s largest companies in 2018 changed its guiding principles to promote business practices that address the needs of all stakeholders. 

First organizations publish ISO 30414 Human Capital standards conforming human capital reports. Starting in 2020, companies in Europe began publishing human capital reports verified by independent third parties. Click here for examples.

European Union Corporate Sustainability Reporting Directive of January 2023 mandates an unprecedented level of stakeholder management disclosures with audited practices and metrics of companies with more than 250 employees or about $44 million in annual sales in the EU. 

The Human Capital Factor. An analytics-based framework is developed by Irrational Capital for predicting enhanced future value equity through effective people management independently verified by J.P. Morgan to create an alpha of at least 4% over benchmarks when effectively implemented. 

 

Stakeholder capitalism isn't a revolution nor a public relations schtick. It's a practical approach to organizational management that enhances performance and stakeholder experiences in a sustainable and measurable way.