Stakeholder Capitalism Veterans: It's Just Better Business

This recent Enterprise Engagement Alliance YouTube show—"Stakeholder Capitalism: The Definitive Webinar”—brings together early founders of the movement to clarify the definition and implementation process being confused by newcomers with “woke” capitalism and “corporatism.” 

 

Before one can debate a concept, first one must define it. This webinar brings together the people who helped create the field of Stakeholder Capitalism long before the Business Roundtable 2019 proclamation that corporations need to address the needs of all stakeholders, which helped thrust this concept in the limelight, along with the World Economic Forum’s renewed focus on the concept at the Davos Conference in 2020. 

 

Click here to view the one-hour Definitive Stakeholder Capitalism Webinar on the EEA YouTube channel, featuring the pioneers long before the Business Roundtable made its pronouncement. 

 

Over the past two years, the issue of Stakeholder Capitalism has been featured in the pages of the Wall Street Journal, New York Times, Financial Times, Barron’s, Forbes, National Review, CNBC, and has become a topic at such leading organizations as the Conference Board and the World Economic Forum, among the first to use the term in the early 1970s. Criticism is coming from both the right and left that Stakeholder Capitalism is merely a way for special interests to rob from shareholders or for bad companies to cover up their greed. Because there is no formal dictionary definition, newcomers to the field are confusing it with “woke” capitalism—that is, efforts to placate special interest groups or pursue CEO pet projects. They overlook the decades of work on Stakeholder Management concepts driven by the goal to find a more effective and sustainable way to create returns for investors and society than the current shareholder focus. 

 

The definition and other observations about Stakeholder Capitalism in this one-hour program come from practitioners at the front lines of this movement going back in some cases decades. The goal of this program is to provide a clear definition of Stakeholder Capitalism based on its history and practice outside of partisan politics; a discussion the implications of the new definition for Stakeholder Capitalism being used by opponents on the left and right; and an overview of what is needed to implement its principles. 

 

The panelists are: 

• R. Edward Freeman, author of the seminal 1984 book, Strategic Management--A Stakeholder Approach; 

• Alex Edmans, professor of finance at the London Business School, and author of "Grow the Pie--How Great Companies Deliver Both Purpose and Profit."

• Martin Whittaker, CEO of JUST Capital, a world-leading Stakeholder Capitalism advocacy organization.

• Eric Darrisaw, Board Member of Interfaith Center on Corporate Responsibility (ICCR) and principal of an ESG-oriented advisory firm.

• Dr. Heiko Mauterer, Principal, 4C GROUP AG - Management Consultancy, a company that conducts ISO 30414 human capital audits.

• Dr. Solange Charas, Principal, HCMoneyball, a human capital advisory firm; adjunct professor on human capital at three universities and co-author of Humanizing Human Capital: Invest in Your People for Optimal Business Results.

 

• Based on usage of the term and concepts of Stakeholder Management long before the Business Roundtable pronouncement and the actual practice and evolution of Stakeholder Capitalism management processes, the Enterprise Engagement Alliance definition is: 

 

“It creates returns for shareholders only by creating value for customers, employees, supply chain and distribution partners, communities, and the environment.” 

 

The definition was created based on input from Alex Edmans and Martin Whitaker based on the principles of Freeman’s work on Stakeholder Management and that of the Enterprise Engagement Alliance. There was never any consideration given to addressing the needs of disinterested third-parties pushing social or other issues.

 

• The definition being used by the left and right appears to be a partisan effort to on the one hand question the ability of capitalism to address societal needs and on the other as a threat to property rights, or the right of companies to pursue profit for the primary benefit of shareholders. Wayne Winegarden, author of recent National Review article, “The Empty Case for Stakeholder Capitalism and ESG Investors,” defines it as: “Companies have an obligation to serve the interests of all stakeholders, beyond just employees, customers, and shareholders, to involve the broader community of diverse individuals who have no direct connection to the company’s interests.”  

 

• Stakeholder Capitalism draws fire from both sides. Observes Freeman, “I have been attacked by the left and right about my views ever since I began this work.” 

 

• Big risks to the movement include the partisan polarization seeking to entangle Stakeholder Capitalism with other agendas, equating it with green-washing or as an attack on shareholder-focused principles based on extracting rather than creating wealth.  Another threat, notes Edmans, includes exaggerated claims by ESG (Environmental, Social, Governance) advocates bending statistics to suit their agendas, rather than recognizing that while effective people management is a path to better returns, other factors come into play as well. 

 

• Despite the challenges to Stakeholder Capitalism, there is no turning back because of the economic benefits, reduced risk, and pressures coming from all stakeholders, all panelists agree.

 

• While the level of awareness is rapidly increasing because of the publicity in leading media, the topic remains largely unknown, and we are in the early stages of figuring out how to implement Stakeholder Capitalism at the practical level, because a practical approach is taught almost nowhere in schools. 

 

• Many companies are overlooking the most obvious form of wealth creation in the form of better human capital management practices based on clear metrics related to financial goals, the equivalent of driving with one eye on the road, notes Charas. 

 

• ESG investing long predates the recent debate coming from the definitions used by the right and left and has moved from its roots in social justice activism to focusing on the linkage between human capital, DEI, and financial performance.  “You cannot decouple DEI from human capital,” says Darrisaw. 

 

• The idea of ISO 30414 Human Capital reporting has moved from a compliance to marketing and communications opportunity, says Dr. Heiko Mauterer, in which companies see the benefits of publishing this information to demonstrate their commitment to people.  

 

• We’re in a “show me” economy in which investors, customers, employees, and other stakeholders wish to know how the organizations they are involved in treat their stakeholders, adds Charas. 

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• Founded in 2008, the Enterprise Engagement Alliance provides outreach, learning and certification in Enterprise Engagement, an implementation process for the “S” or Social of Stakeholder Capitalism and Human Capital Management and measurement of engagement across the organization.
• The Enterprise Engagement Alliance provides a training and certification program for business leaders, practitioners, and solution providers, as well as executive briefings and human capital gap analyses for senior leaders.
• The EEA produces an education program for CFOs for the CFO.University training program on Human Capital Management.
• Join the EEA to become a leader in the implementation of the “S” of ESG and Stakeholder Capitalism. 

• The ESM information portal and The Enterprise Engagement Advisors Network solution provider marketplace cover all aspects of stakeholder engagement, and the EEA information library lists dozens of resources.
• The RRN information portal and Brand Media Coalition marketplace address the use of brands for gifting, incentives, recognition, and promotions. The BMC information library provides information and research resources.

• Enterprise Engagement for CEOs: The Little Blue Book for People-Centric Capitalists. A quick guide for CEOs.
• Enterprise Engagement: The Roadmap 5th Edition implementation guide. A comprehensive textbook for practitioners, academics, and students.

• Organizations of all types develop strategic Stakeholder Capitalism and Enterprise Engagement processes and human capital management and reporting strategies; conduct human capital gap analyses; design and implement strategic human capital management and reporting plans that address DEI (Diversity, Equity, and Inclusion), and assist with managed outsourcing of engagement products and services.
• Human resources, sales and marketing solution providers profit from the emerging discipline of human capital management and ROI of engagement through training and marketing services.
• Investors make sense of human capital reporting by public companies.
• Buyers and sellers of companies in the engagement space or business owners or buyers who seek to account for human capital in their mergers and acquistions.