Analysis: Stakeholder Capitalism Makes More News

In the last week, Stakeholder Capitalism continues to draw both positive and negative attention from the media and business influencers. The Enterprise Engagement Alliance promotes the concept of Stakeholder Capitalism because it is an approach to organizational success supported by the implementation process and curriculum developed by the Enterprise Engagement in 2009. See Stakeholder Capitalism: A Primer.

By Bruce Bolger

The topic of Stakeholder Capitalism continues to gain increasing attention. In the past week, the New York Times featured an article on John Mackey of Whole Foods on the principles of Stakeholder Capitalism; the influential World Economic Forum released a report recommending specific disclosures for human capital and other ESG (Environmental, Social, and Governance) practices and metrics; leading law firms are telling CEOs what they have to do to comply with new US Securities & Exchange Commission disclosure requirements, and right-wing organizations have continued to criticize it as being anti-shareholder.

In a New York Times article published in its Sunday Business section, John Mackey of Whole Foods Market, says, "When businesses find their true purpose and serve not just investors but all stakeholders, everyone wins." He adds, "Whole Foods can't solve all the country's problems...What we can do...is sell healthy food to people. We have 100,000 people working with the company. So, we've been a good employer. We've tried to keep them safe during Covid-19 times."

Mackey says Amazon has been a good owner and that it bases it's decisions on analytics more than Whole Foods did when it was an independent company. "Amazon made the decision, and Whole Foods concurred with it, that we just needed to pay better.” He says the company made less profit for that year but "morale went through the roof." What he didn't say is that analytics prove that effectively managed companies deliberately pay more than the minimum wage because of the resulting higher productivity and quality and less turnover and risks.

Also last week, the World Economic Forum doubled down on its commitment to promoting Stakeholder Capitalism in a report overseen by Brian Moynihan, Bank of America CEO and Klaus Schwab of the WEF, "Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation." The report recommends an ambitious set of ESG disclosure principles, including human capital measures related to diversity, pay equity, health and safety, training, employee turnover, and oversight of supply chain people practices.

Those who are interested in these new disclosure recommendations can attend a free webinar, while registration is available to learn about this new initiative from Brian Moynihan, Chairman and CEO of Bank of America; Klaus Schwab, Founder & Executive Chairman, World Economic Forum; Carine Di Sibio, Global Chairman & CEO, EY, and others. The event is on Oct. 7 at 11 am ET US. Register here.

Pointing out the 2021 proxy season is near, Michael S. Melbinger, an attorney at Winston & Strawn LLP tells clients in the company’s blog some of the human capital issues they need to consider in light of the new Securities & Exchange Commission disclosure requirements:

The organizational structure through which the company manages its human capital resources.
Internal rates of hiring and promotion.
Measures regarding average hours of training per employee per year.
Measures regarding worker productivity.
The education and experience of the company’s workforce.
Succession planning for potential successors to senior leadership roles.
Opportunities for emerging talent in the organization.
The safety of the workforce, including frequency, severity and lost-time due to injuries, illnesses and fatalities, and percent of first-tier suppliers that were audited for safety and health compliance.
Inculcating company culture and norms.
Information regarding the trend of all/each of the human capital factors above."

In a recent article in the New York Times, “Business Roundtable Stakeholder Capitalism Gets a Report Card: It’s Not Good,” author Peter S. Goodman cites numerous examples of Business Roundtable members overlooking the principles of the charter they signed to address the interests of all stakeholders. However, the writer provides no formal definition of Stakeholder Capitalism upon which to draw this conclusion. (Stakeholder Capitalists must make tough decisions too, such as a highly successful employee-owned company that had to lay off employees after the pandemic struck to preserve the survival of the enterprise.)

Writer Andrew Stuttaford writes in National Review that Stakeholder Capitalism will result in “a country that is poorer and less free than it should be." The writer states: “Stakeholder capitalism is a modish name for what is just another expression of corporatism, an old ideology with a sometimes sinister past that, because of the power it gives to the unelected and the unaccountable, will never fall far out of style. That, in this case, it involves playing around with other people’s money only adds to its sleazy appeal.”

Similarly, in an Economist, article, “What Is Stakeholder Capitalism,” the writer warns: “Beware of a new world of near impossible trade-offs." Yet he too never provides a clear widely accepted definition.

On the other end of the spectrum, Binyamim Applebaum, a member of the New York Times editorial board, writes recently, "Government remains the most powerful means to express our collective will. The necessary solution is to create stronger incentives for good behavior and laws against bad behavior. Instead of urging power companies to burn less fossil fuel, tax carbon emissions. Instead of pleading with McDonald’s to raise wages, raise the federal minimum wage. Instead of shaming Amazon for squeezing small business, enforce antitrust laws."

This one week of news reflects a lot of discussion about a subject that has yet to have a formal, widely accepted definition.

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