Your portal to
enterprise engagement

Stakeholder Capitalism and ESG Cheat Sheet Should Your Board, CEO, Clients or Friends Ask

The Power of AndNow that a Republican candidate for US president has shed an unfavorable spotlight on the non-partisan Stakeholder Capitalism movement by conflating it with wokeness, chances are increasing that you will be asked about the subject of Stakeholder Capitalism and ESG (Environmental, Social, Governance.) As a result, the Enterprise Engagement Alliance has published these answers to frequently asked questions about the definition, history, and principles of Stakeholder Capitalism.
Here is what you need to know about Stakeholder Capitalism in case you’re asked along with related resources for more information to draw your own conclusions.
By Bruce Bolger

What is Stakeholder Capitalism? 
Where Does the Concept Come From?
What is the Difference Between Stakeholder Capitalism and ESG (Environmental, Social, Governance)?
What Is the Economic Justification?

What Does Stakeholder Capitalism Have to Do With Your Business?
What Are the Essential Principles for Implementation?
Regulations and Reporting
The Role of Technology
Would Milton Friedman Have Approved of Stakeholder Capitalism?
Is Stakeholder Capitalism a Left- or Right-Wing Issue?
How Did the Topic Become Politicized?
Why Stakeholder Capitalism and Politics Don’t Mix
What Does Stakeholder Capitalism Have to Do With DEI?
Stakeholder Capitalism and the Environment
How Can One Support Stakeholder Capitalism?
Where Can You Go to Get More Information?

What is Stakeholder Capitalism?

Enterprise Engagement for CEOsThere is not yet a formal definition in any dictionary. The closest in Wikipedia is a re-direct to Stakeholder theory, which makes little mention of ESG, considers corporate social responsibility as one of only many aspects. It largely comports with the definition published in 2020 on by the author of this article and Professor Alex Edmans of London Business School, with input from Martin Whittaker, Co-Founder of JUST Capital, and many others in the Enterprise Engagement Alliance community: “Stakeholder Capitalism enhances returns for investors only by creating value for customers, employees, supply chain and distribution partners, communities, and the environment.” There is no mention of social issues or corporate social responsibility, as positive societal results are the general outcome of Stakeholder Capitalism but not always the mission of specific organizations.
To address the lack of objective information on Stakeholder Capitalism, the EEA created and periodically maintains a primer on the history of Stakeholder Capitalism.
Click here for a theoretical example of a model company based on a 100-year-old employee owned company that was sold to a private equity firm and which ceased to exist within a decade.

Where Does the Concept Come From?

Grow the PieThe origin of formal Stakeholder Capitalism principles goes back at least to the 1950s and the work of Edward R. Deming. The Wikipedia stakeholder theory entry traces it back to the early 20th century.  The same general concept was articulated in the Davos Manifesto issued in 1973 upon the creation of the World Economic Forum in Switzerland. Edward R. Freeman, a professor at the Darden Business School of the University of Virginia was the first to formally articulate the framework in the 1984 academic world in Strategic Management: A Stakeholder Approach, re-issued in 2010 and still in print. Since then, well over 100 academic studies have been conducted on the concept and dozens of books published. Almost none of the advocates talk about re-directing profits to address the ad hoc social concerns of CEOs. The emphasis is on conducting business ethically in such a manner that enhances returns for investors by creating wealth and helping to solve problems rather than by imposing hidden costs on society by underpaying employees, producing low-quality or dangerous products or fraudulent services.

What is the Difference Between Stakeholder Capitalism and ESG (Environmental, Social, Governance)? 

Stakeholder Capitalism has its roots in the development and implementation of more sustainable business practices across the enterprise, with sustainability one of many issues. The concept of ESG arose in the 1960s when investors began to consider social and health issues such as apartheid, car safety and tobacco in their investment decisions and it gained traction during the 2000s when the United Nations began to put a focus on sustainable development. While the concepts continue to merge, the Stakeholder Capitalism movement arose from business management with a particular focus on the “S” of ESG while ESG came from the investment perspective with much more emphasis on the environment. The term ESG continues to define investment and disclosure and management practices oriented to environmental, social, governance issues, while Stakeholder Capitalism generally refers to its overall practice in organizational management, but the concepts are converging because they both focus on a stakeholder approach to value creation across the enterprise, community, and the environment.

What Is the Economic Justification?

Until the politicization of the subject changed the conversation, the bulk of the work related to Stakeholder Capitalism implementation is founded on how to make business more efficient over time while creating better experiences for all stakeholders by fostering greater engagement across the enterprise. Extensive research as well as the performance of real and mock ETFs (Exchange Traded Funds) demonstrate a clear connection between having highly engaged stakeholders and enhanced financial performance. Click here for a list of research studies. The role of engagement has come into even greater light in consideration of the remarkable success so far of the Ukrainians in opposition to a foe with far greater resources but apparently much less soldier engagement.

What Does Stakeholder Capitalism Have to Do With Your Business?

Enterprise Engagement: The RoadmapEverything. Look no further to see what total quality management accomplished for manufacturing to see what it can accomplish for your business, including:
  • More sustainable financial results by having stakeholders truly involved with the mission of your organization and watching your back.
  • Higher sales because of greater sales force, distribution partner, customer, and community engagement because people like the organization and want to help.
  • Lower customer and talent costs, less litigation, more positive social media and referrals.
  • Happier investors because they have a clear understanding of the organization’s mission, vision, values, goals and objectives and a more objective means of evaluating a potential investment.
  • Smarter acquisitions because the valuation process includes a transparent analysis of the true human capital of an organization that reflects both value and risks.
  • More prosperous communities because the organization’s CSR strategies more sustainably align its own interests with those of the community.
  • Better valuations for owners seeking to exit by having their human capital assets more accurately calculated into the sale price multiple.
  • Greater readiness for coming integrated accounting rules and human capital disclosure requirements that eventually could become a desirable factor for those seeking investments or loans.

What Are the Essential Principles for Implementation?

Stakeholder Capitalism has little to do with corporate social responsibility; rather, it’s a system for achieving an organization’s purpose through a clear strategy addressing the interests of all stakeholders with a baked-in continuous-improvement process; i.e., total quality management for people. Countless societal benefits are derived from this process most specifically when an organization’s social needs align with those of the company, but the bulk of the implementation includes much more brass tacks elements more similar to total quality management in manufacturing than it is to having a CSR department.
Here are the key implementation steps for an organization starting down the path to stakeholder management. And, if it sounds familiar to total quality management, it is.
1. Brand purpose clarification. It’s critical for all stakeholders to have a clear understanding of the organization’s purpose, culture, values, priorities, goals and objectives, led and passionately facilitated by the CEO. This is where objectives related to the environment or diversity, equity, and inclusion belong because they lay at the heart of all organizational activities and trade-off decisions. An ongoing process is required to establish and maintain alignment across the organization and to continually attack siloes.
2. A business operating system. Without a basic process for creating and maintaining a business plan, brand purpose statements are no more than a poster on a wall. A business operating system more efficiently focuses activities on goals and principles; saves time by setting up a process for creating annual business plans for all division managers aligned with the overall principles and goals; establishes purpose, plans, metrics, and priorities that are rigorously and collectively monitored in a weekly, monthly, and quarterly review process based on priorities. At the end of each year, department heads meet at an off-site for several days to assess results and plan accordingly, based on the metrics, feedback, assessment, and continuous improvement process. A business operating system actually saves times because it reduces the need for ad hoc meetings or email exchanges and provides the documentation necessary for companies that need or wish to comply with corporate sustainability reporting requirements. At most, it requires no more than an investment of a professional facilitator if necessary, usually a fraction of the cost of a senior executive, or if a qualified internal executive is available, proper training and tracking and reporting systems.
Dealing with tradeoffs. Every person, every organization must make tough trade-offs every day, the toughest being faced when personal, family, or an organization’s actual survival is at stake. Having a clear purpose, values, culture, goals and objectives, helps make better trade-offs, and having a business operating system provides an already built in process for addressing circumstances that could cause sacrifices to one’s self and others. A clear purpose makes it easier to explain the basis for the trade-offs. 
3. Clear enterprise and departmental metrics.  As long understood, that which gets measured, gets focused on, which is why starting with the brand purpose, values, goals and objectives is so important. The key is to ensure that metrics are relevant to what an organization is seeking to accomplish. Common enterprise metrics include: human capital return on investment, human capital value add, and others, such as revenues, costs, referrals per employee, customers, or other relevant stakeholders; safety, wellness, and diversity, equity etc; current and future skills requirements; bench strength (people who can fill in for others), and workplace availability—sources of new talent if needed. ISO 30414 Human Capital Management and ISO 10018 People Engagement standards provide useful low-cost frameworks and suggested metrics.
4. Strategic workforce planning. This means establishing a holistic approach to employee management based on having good metrics enables organizations to establish:
  • Meaningful, consistent wage strategies that start at a realistic living wage for full-time employees as a basic minimum so as not to externalize costs onto society.
  • Benefits that address real needs and aspirations, starting with health, financial, family concerns.
  • Career-laddering—identifying personalized development plans.
  • Bench strength development plans, including job-sharing and other means of making sure there is someone to fill in when there are unexpected departures.
  • Rewards and recognition—how to drive and honor the right actions and attitudes to support your purpose in a meaningful and authentic manner.
  • Full-time versus part-time planning—setting aside a designed percentage of workforce to contingency positions (retirees, stay-at-home parents, etc.) to minimize the need to lay off full-time employees during downturns or other disruptions.
5. Stakeholder voice. The most customer-focused organizations have advanced systems for encouraging feedback and crowd-sourcing from all stakeholders and most importantly analyzing and sharing data with all managers and incorporating insights and recommendations into the business planning process.
6. Job design. Strategically focus on how to create jobs that enable employee to feel ownership in the outcome, innovate, vary the tasks throughout the day, share jobs, to make people more productive and fulfilled.
7. Ongoing communications. Establishing a clear information strategy aligned with organizational purpose and values to share news, information, feedback, case studies, personal stories, and any information that can help stakeholders better engage with the organization. Communications can also include videos, events, and merchandise and related items that people want to use or hold on to.
8. Training, professional development, and knowledge management. Like any other business process, the personalized development of a career path at any level and the more strategic management of an organization’s expertise yields better results than the often ad hoc, reactive approach. Each person has different circumstances, capabilities, desires, short- and or long-term aspirations upon which to to systematically find the biggest opportunity for a win-win relationship, and then identify the type of mentoring, training, or other development that might enable and enrich the path, as well as ways in which that person’s expertise can be documented and readily accessed by others on demand.
9. Customer engagement. The process of engaging customers and encouraging meaningful loyalty and advocacy—rather than having these processes siloed into a separate area—is a critical discipline of its own incorporating the same multi-faceted world of tactics and metrics to encourage loyalty and referrals applied to consumers but directly connected to internal marketing. The best results occur when customer engagement is fully aligned to support the message directed at employees and to other stakeholders.
10. Supply chain and distribution partner engagement. The organizations that supply the essential components of our products, services, and technologies, or who bring our products and services to market, are as much an asset as our other stakeholders and should be involved with relevant stakeeholder management processes consistent with organizational purpose, values, goals, objectives, and metrics.
11. Community engagement. Smart organizations view community engagement as a business opportunity either to gain good will with neighbors, or potential customers or talent. Their investments are most sustainable when they support both the needs of the organization to create enrichment and opportunities to activate clients and/or employees and align with the organization’s need for a pipeline for customers and employees and good relationships with local communities.
12. Continuous improvement. As occurs on the shop floor of total quality management factories, quantitative and qualitative metrics are continually monitored for warning signs and opportunities, and more deeply assessed by management representing all stakeholders at each appropriate milestone in the spirt of how can information and outcomes be used to further the organization’s metrics and goals.

Regulations and Reporting

Given that no changes in corporate law are required to carry out any of the practices in Stakeholder Capitalism, and based on the prevalence of public benefits corporate statutes in 35 states and about a dozen other countries that allow for corporations to embed a stakeholder approach into their articles of incorporation, the legal debate is moot for most businesses.
The major exception is the growing practice of some state governments to regulate ESG investment considerations, which is already leading to litigation from banks claiming that such requirements conflict with their fiduciary responsibilities to investors. Much of the concern raised by opponents to ESG investing concern protecting the interests of the fossil fuel industry, but some also throw in the perceived pressure on corporations to adopt liberal agendas. This is a matter for the courts and electorate to decide, but has little impact on organizations seeking to enhance their performance through a stakeholder approach to management. 
Otherwise for businesses, the concepts of Stakeholder Capitalism will have the greatest regulatory impact in the area of reporting. For now, stakeholder management reporting remains minimal, but changes are afoot. Most companies that today publish what increasingly are known as Corporate Sustainability Reports do so for overall investor, talent, customer, or community marketing. Currently, US public companies have to report on human capital metrics and practices in their annual 10K filings  to the extent considered material to their business, which so far has resulted in minimal specificity, and many now publish Corporate Sustainability Reports on their web sites. Some even request basic human capital or ESG oriented information from their vendors.
The European Union Corporate Sustainability Directive has recently been expanded to include very specific practices on metrics on workforce management, including turnover, both at companies with 250 or more employees and at the companies in their supply chain and distribution channels; as well as specific metrics on consumer management. These are expected to have an affect in the US in the same way as GDPR privacy regulations, because many US firms do business with Europeans.
While attorneys at the influential Harvard Law School Forum for Governance debate the merits of a stakeholder approach to governance, the practical implementation of stakeholder management does not require any government or regulatory involvement, because none of the precepts outlined in this cheat sheet require even a change in an organization’s articles of incorporation. In addition, public benefits statutes in 35 US states and about a dozen countries enable organizations which seek to put purpose before profits to make that an official part of their articles of incorporation so that investors have little doubt as to an organization’s priorities.
In the meantime, the International Accounting Standards Board is considering the addition of so-called Integrated Reporting to financial reports, which would include information about human capital management and the environment. It is developing a “comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. In a bid to standardize standardization, the IFRS Foundation is completing the consolidation of the Climate Disclosure Standards Board and the Value Reporting Foundation, which manages the Integrated Reporting Framework, and the SASB (Sustainability Accounting Standards Board.) The World Economics Forum is also promoting voluntary Stakeholder Capitalism metrics. The two million or more companies familiar with ISO (International Organization for Standardization) standards can take advantage of voluntary ISO 30414 for Human Capital reporting and ISO 10018 for People Engagement to better manage their stakeholder engagement practices.

The Role of Technology

Readily available, highly affordable Enterprise Engagement technology makes it possible for almost any size organization to have a fully integrated smart phone accessible platform for communicating with, surveying and soliciting feedback and suggestions, rewarding and recognizing, promoting DEI, safety, wellness, and sustainable activities, offering incomparable qualitative and quantitative metrics.

Would Milton Friedman Have Approved of Stakeholder Capitalism?

A reread of Friedman’s classic 1970 New York Times article, Friedman Doctrine: The Social Responsibility of a Business Is to Increase Its Profits, is worthwhile not only to dispel the reckless mis-use of his ideas but also because of how current the debate remains over 50 years later.
Milton Friedman clearly states that the purpose of a corporation is to enhance profits, but he adds important caveats. They must act ethically and without fraud. Any social benefits actions must align with corporate purpose, he writes, and as a result it’s hypocritical (in today’s language “greenwashing”) to brag about such actions as a form of social responsibility. These are the basic principles of Stakeholder Capitalism based on a review of the literature.
As multiple authors have independently demonstrated, Milton Friedman clearly would have approved of Stakeholder Capitalism and in fact in a public forum said so before his death. “The differences between John Mackey and me regarding the social responsibility of business are for the most part rhetorical. Strip off the camouflage, and it turns out we are in essential agreement.” (John Mackey is the founder of Whole Foods and of the not-for-profit Conscious Capitalism movement.) See ESM: In His Own Words, Milton Friedman Supported Stakeholder Capitalism.

Is Stakeholder Capitalism a Left- or Right-Wing Issue?

Stakeholder Capitalism is closer to total quality management than it is to corporate social responsibility, and it’s safe to say none of its founders ever expected it to become a political issue because it consists of completely non-partisan principles. Since it does not require legislative action or legal changes, and most people in surveys on the left and right approve of Stakeholder Capitalism principles, there’s no reason for the subject to enter the political arena. Indeed, the opponents of Stakeholder Capitalism include the extremes on both the left and right who agree that it’s greenwashing and bad for corporations to step out of their lane to run the world, when neither such actions are in the spirit of the movement.

From a legislative standpoint, the Republicans have actually been the most effective proponents of Stakeholder Capitalism, as Republicans have largely supported public benefits corporate statutes in 35 states, many of them dominated by Republicans, including Texas, West Virginia, New Hampshire, Florida, Lousiana, and were even signed into law in Indiana by former vice president Mike Pence. Public benefits corporations modify their articles of incorporate in such a way that specifically gives management the right to consider the interests of all stakeholders in their decisions.

Democrats have supported laws that would force certain disclosures of ESG practices and metrics of companies with sales of over $1 billion in sales, but all have died in Congress. Democrats are also more likely to support laws to protect consumers, workers, and investors, as well as for companies to pay a living wage, provide health care, and offer parental leave, etc. 

How Did the Topic Become Politicized?

Even though Elizabeth Warren and other mostly Democratic legislators introduced bills in the late 2010s to promote greater ESG disclosures by companies with sales of over $1 billion, the bills stalled in Congress and the media yawned, despite anger against corporate America during the Great Recession. Stakeholder Capitalism and even ESG might have remained below the radar screen had not the perfect storm occurred in the late 2010s: a period of heightened social unrest and division even before the pandemic; the Business Roundtable August 2019 charter issued without a clear definition or action plan; the Davos 2020 conference that made Stakeholder Capitalism appear elitist; the growth of ESG investing, the rise of the concept of “woke";  right-wing anger at the concept that investor dollars are favoring companies that are seeking to sunset the fossil fuel industry; left-wing anger at corporate grand-standing and hypocrisy, and general agreement on all sides that no one wants corporate titans to rule the world.
Instead of focusing on the practical implementation of stakeholder management and the more sustainable approach to value creation as has occurred in the world of total quality management, the normal process is being disrupted by the current media business model, which is driven by social media clicks, generally produced by promoting disagreement, shock, awe, tragedy, romance, sex, and pithy wisdom, and sometimes investigative journalism, not wonky, boring subjects such as improving people management processes across the enterprise.

Why Stakeholder Capitalism and Politics Don’t Mix

While international, national, and local laws, regulations, and other actions frequently affect organizations all the time, Stakeholder Capitalists only get involved when such actions affect their well-being, survival, or operating principles, and in most cases they eschew any public statements or political contributions whatsoever except to organizations that support bipartisan cooperation on related business issues or if their survival is at stake. Click here for a conversation on this topic and others with Leo E. Strine, Jr, , an early proponent of Stakeholder Capitalism and a former Chief Justice of the Delaware Supreme Court and now at counsel for Wachtell, Lipton, Rosen & Katz. Click here for the views of a long-time professor in stakeholder management on the potentially damaging impact of politics. 

What Does Stakeholder Capitalism Have to Do With DEI?

Having the most diverse community of customers, employees, supply chain and distribution partners and welcoming communities is seen in Stakeholder Capitalism as a business opportunity, not a responsibility. So, a stakeholder-oriented fast-food chain, for example, would see that it is in its financial interests to contribute to local school and social activities to create local good will for its area franchises as well as create a pipeline of potential employees or franchise owners in all communities. It would make sure to pay its employees enough that the community’s inhabitants can afford to buy its products or recommend it to friends to patronize or for job opportunities. The organization may wish to “market” these activities; however, the greatest impact most likely will come from their authentic and sustained implementation. 

Stakeholder Capitalism and the Environment

Whether one believes or not in man-made global warming, polluting violates the basic credo of Stakeholder Capitalism against externalizing costs; i.e., imposing unfunded mandates on people or communities (thereby taxpayers) by underpaying employees, deceiving customers, cheating distribution and supply chain partners, and polluting communities, damaging infrastructure, or leaving behind eye-sore abandoned facilities. The debate about climate change is a red-herring that diverts attention away from the simple fact that cleanliness is next to godliness among the religious, agnostic, and atheists alike, and that it is sensible to make a balanced, sensible transition to more sustainable sources of energy over time. (Note that the Enterprise Engagement Alliance has no expertise on the "E" of ESG other than how stakeholders fit into the picture.

How Can One Support Stakeholder Capitalism?

Chances are, if you are like many, you are already encouraging the movement by being more selective about who you do business with, work for, sell through, buy from, welcome into your communities, or whom you refer to others. That's the free market at work. If you'd like to go one step further, sign the Enterprise Engagement Alliance Keep Politics Out of Stakeholder Capitalism petition, which only will have value if enough people sign it. The Enterprise Engagement Alliance is a completely non-partisan organization, does not solicit donations, and, while highlighting candidates on their Stakeholder Capitalism positions in its media, does not endorse candidates or parties. 

Where Can You Go to Get More Information

Click here for what is probably the largest library of information from multiple sources on the topic of Stakeholder Capitalism and its practical implementation process.
Contact Bruce Bolger
Founder, Enterprise Engagement Alliance
520 White Plains Rd., Suite 500
Tarrytown NY 10591
914-591-7600, ext. 230
Helping organizations profit from Stakeholder Management. Subscribe to ESM's weekly newsletter. 

1. Professional Education on Stakeholder Management and Total Rewards
2. Media 3. Fully Integrated Business Development for Engagement and Total Rewards
Business Development for Stakeholder Management and Total Rewards solution providers, including Integrated blog, social media, and e-newsletter campaigns managed by content marketing experts.
4. Advisory Services for Organizations

Stakeholder Management Business Plans Human Capital Management, Metrics, and Reporting for organizations, including ISO human capital certifications, and services for solution providers.
5. Outreach in the US and Around the World on Stakeholder Management and Total Rewards
The EEA promotes a strategic approach to people management and total rewards through its e-newsletters, web sites, and social media reaching 20,000 professionals a month and through other activities, such as:
Earn Big $ In EEA Referral Program
Enterprise Engagement Resources
Committed to Stakeholder Capitalism   Refer, Rate, Suggest & Earn
Engagement Solutions


Incentco: The No. 1 Suite of Engagement Technologies.

PurposePoint: The Purpose Leadership Community


Catalyst Performance Group




Fire Light Group

Luxe Incentives


Incentive Team