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Shareholder Capitalism Versus Stakeholder Capitalism: Which Is Better for Business?

Here is a comparison of the two business systems to help you decide which is better for business.
The following comparison of shareholder capitalism versus stakeholder capitalism is based on how shareholder capitalism is currently practiced at the majority of organizations versus the principles of stakeholder capitalism.

For the purposes of comparison, shareholder capitalism is defined as is the theory of business ethics advanced by economist Milton Friedman which holds that the only responsibility of business is to increase its profits, as long as it acts in an ethical manner in compliance with the law. Stakeholder capitalism, based on over 50 years of usage (not the greenwashing statements of some organizationsin the 2019 and 2020) is defined in Forbes as: enhancing returns for investors only by creating value for customers, employees, supply chain and distribution partners, communities, and the environment. 
For achieving short-term profits there is little doubt that shareholder capitalism has distinct advantages over stakeholder capitalism, because it is acceptable to trade-off longer term risks to hit short-term profit projections. By definition, Stakeholder Capitalism seeks more sustainable returns and often has a broader definition of profitability based on the stated purpose of the organization.

Factors Shareholder Capitalism   Stakeholder Capitalism Your Organization?
1. Risks *Risks may be higher because there is a greater chance that environmental, social, governance, culture, etc. issues will be ignored and cause an unpleasant surprise.
*There are fewer ways of knowing on what basis organizations are making decisions and what trade-offs have been made.
*Mergers and acquisitions are riskier because it’s likely that critical people or environmental issues will be overlooked.
*Governance is treated as a compliance issue and therefore may not provide much protection.
  *Risks are mitigated because the organization has clearly stated its purpose and its goals and objectives; methods to achieve them, and the metrics by which it measures progress.
*Mergers and acquisitions have a greater chance of success because people, culture and environmental issues will be evaluated and considered.
*There is less risk of short-term tradeoffs and greater chance of transparency if there is a clear purpose, goals, and objective for the organization.
*Governance s considered an opportunity to formalize and implement policies consistent with organizational purpose and culture.
2. Purpose and Culture *The company either has no clear statement of purpose and culture or has one but essentially ignores it.
*Investors and all stakeholders have little idea about the basis upon which key organizational decisions are made other than vague pronouncements.
  *The organization has a clear purpose statement that is baked into all facets of day-to-day management and assessment, along with goals and objectives.
*Investors and all stakeholders have a set of principles by which they can decide if and how they wish to engage in the organization as an investor or other stakeholder, as well as to better understand tradeoffs.
3. Stakeholder Experiences Shareholder capitalists minimize stakeholder experiences because they feel they are difficult to measure--except for shareholders, insiders, management, top salespeople, major customers and distribution partners, and friendly politicians etc.   Stakeholder Capitalists seek to optimize stakeholder experiences because they wish to foster their proactive involvement in their purpose, goals, and objectives, and because their key metrics include tracking the engagement of all stakeholders.  
4. Leadership *Leadership is often selected to have a tenure of three to five years so that the CEO focuses on short-term returns and can be relieved by a “fresh face” to "clean house." 
*Management is often selected from among “friends and family” and generally protected by the powers that be.
*Investors have little idea to what extent long-term interests are being risked for short-term gain.
*Human capital and DEI are just buzzwords, and recognition and other engagement efforts are likely fluff with little measurement.
*Investors will generally consist of those looking for short-term gains who do not care about long-term returns or people management.
*Stock buybacks at public companies will be favored over human capital investments because of their perceived short-term return and clearer ROI.
  *Leadership is generally selected to remain as long as he or she can or wishes to effectively lead the organization forward through innovation and continuous improvement.
*The CEO focuses on fulfilling the organizational purpose with an eye on producing consistent, sustainable returns and will risk short-term gain for clearly articulated longer-term benefit.
*Management is transparently selected based on the organization’s purpose, values, and emotional intelligence and technical requirements, and held to transparent performance standards.
*Investors will generally consist of those looking for longer-term returns, rather than a quick buck.
*Stock buybacks will be carefully considered based on the ability to improve productivity, quality, and experiences through strategic investments in people, technology, or other opportunities.
5. Human Capital Metrics and Disclosures *Organizations disclose as little as they can about Environmental, Social, and Governance issues and do not have effective measures on Human Capital ROI or Value Add; revenues, costs, willingness to refer of customers, employees, or other stakeholders; organizational, wellness, and safety, or Diversity, Equity, Inclusion (DEI) effectiveness.
*Investors have no idea how much risk or people inefficiencies are being built into the organization’s business model.
  *Organizations view all their stakeholders as “capital” that makes a material contribution to the bottom line and therefore rigorously tracks key stakeholder engagement and human capital metrics linked to the bottom line.
*The organization freely shares its purpose, methodologies, and metrics used to address critical human capital objectives across the enterprise in their Corporate Sustainability or related reports.
6. Customers *Customers are considered an expendable unit that can be replaced.
*There is often little connection between promises made in marketing and actual delivery of those promises.
*Much more is spent attracting customers than keeping them.
*Loyalty programs are generally transactional and do not address the fundamental components of engagement; i.e., value, service, emotion.
*Promotions are often border-line or outright deceptive. 
*High levels of customer dissatisfaction and churn are tolerated to save short-term investments to  enhance experiences.
*There is a low level of measurement of customer engagement to understand the true cost of turnover because nothing would be done about it anyway.
*The company simply builds high levels of dissatisfaction into its business model with no disclosure to investors as to the cost because it isn’t even known.
*Shareholder Capitalism investors simply don’t care provided there are short-term results.
*DEI is considered simply another way to expand the organization’s marketplace.
  *Customers are considered a precious asset to be nurtured.
*The organization rigorously tracks not only new customers, but retention, profitability, referrals, loyalty, etc.
*Customer experience is carefully managed to maximize satisfaction and minimize frustration and to promote referrals.
*Loyalty programs go beyond transactional to create an emotional bond by providing tangible and intangible value related to the brand promise.
*Promotions and incentives provide meaningful value with no deception.
*The organization engages and involves employees and customers in a never-ending quest for improved customer service efficiently and effectively delivered.
*Longer-term investors benefit not only from having lower risks but from the enhanced brand equity that comes with having a customer-beloved enterprise.
7. Employees *Employees are a unit of production whose cost is to be minimized to the extent possible while meeting only the minimum standards of productivity and quality.
*Employees, except for sales and management, should consider their paychecks and benefits to be their incentive.
*Turnover often is encouraged to keep wages low.
*Expenditures for culture, training, professional development are kept at a minimum and done so as window-dressing only.
*The company builds high turnover into its model with no measurement of the impact on quality, productivity, or customer satisfaction. There is no thought on how to design jobs to make them more engaging. 
*Employees have little voice and low engagement, depriving the company of innovative ideas and leading to higher rates of accidents and lawsuits.
*Gainsharing, incentives, meaningful recognition and rewards are reserved for senior management and top sales performers and distribution partners.
*Employee managers are “friends of friends”, are given little training, and are rarely held accountable for creating toxic work environments.
*DEI is considered a compliance issue with little strategic backing.
*There is no focus on community other than the pet interests of senior management or as a response to local social pressures.
*There are no metrics for effective stakeholder management and little is disclosed to investors, leaving investors unaware of the potentially high costs of poor human capital management on productivity, quality, and customer satisfaction, let alone the hidden cost of turnover.
  *Employees are considered a critical asset whose value is to be maximized to the extent possible.
*People are recruited to minimize turnover by identifying people who can either grow or find an otherwise acceptable path to a mutually beneficial relationship—except in some roles in which turnover makes sense for all.
*Organizations not only ensure a living wage and more but employ a Total Rewards strategy that addresses other work-life needs based on the circumstances of their stakeholders.
*DEI, skills development, job design, and job sharing are actively used to foster increased productivity and quality, and retention, and more enriching workplace and employee experiences.
*Employees have an active voice in the organization; feel encouraged to make suggestions, and generally look out for the organization’s best interests when they can.
*All employees have a chance to participate in gainsharing, incentives, recognition, stock, as appropriate.
*Employees’ managers are carefully selected, trained, and evaluated to create a positive work environment and moved when they fail to do so.
*Every effort is made to foster a positive, inclusive, respectful and even fun work community in which people wish to come to work.
*The organization employs rigorous human capital measures such as Human Capital ROI, Value Add; revenues, costs, willingness to recommend of employees, etc., organizational culture, DEI and reports on its purpose, practices, and metrics to stakeholders.
8. Supply chain partners *Manufacturers and logistics companies are considered a cost to be squeezed and minimized.
*Vendors are likely to be changed often and pressured continually on cost and service requirements.
*Vendors are selected because they are “old buddies” of a decision maker.
*Vendors get stiffed more often for little reason.
*Service level evaluations can be capricious and punitive.
*Payments can be late or erratic, with little explanation. 
  *Supply chain partners are considered critical to success.
*While held to rigorous and transparent service level requirements, they are treated as respected partners in planning and deployment who need to make money to add value.
*Service level evaluations are strategic, transparent, and constructive.
*Payments are made on time with unavoidable delays transparently explained.
*DEI is supply chain practices is simply considered another means to access quality partners.
9. Distribution partners *Distribution partners are considered a cost to be squeezed at every opportunity only to the point of not turning off the most productive partners.
*Those in the top tier get lavish treatment; the rest are squeezed and turn over at a high rate.
  *Distribution partners are considered a critical part of the value proposition and are given all of the training, communication, and sales and marketing support appropriate to advance their business interests.
*Organizations pay as much attention to the top tier as they do to development their “middle 60%.”
*DEI is considered simply a better way to gain access to new markets.
10. Diversity, Equity, Inclusion *DEI is considered a cost of doing business rather than a strategic opportunity.
*As little as possible is done and what is done is usually window-dressing; i.e. token donations or setting up directionless employee resource groups.
*Organizations do as little as possible to disclose anything.
*Investors lose out because of the wasted money; higher risks of litigation, and a failure to benefit from the advantages of having the most diverse possible pool of customers, employees, distribution and supply chain partners, and welcoming communities.
  *DEI is considered a no-brainer because the organization believes the advantage goes to those with the broadest range of customers, employees, distribution, and supply chain partners, and welcoming communities.
*They build DEI into their business processes rather than segregate it into a Corporate Social Responsibility office.
*Companies clearly disclose their purpose, goals, process, and metrics as a means of demonstrating their commitment and thereby attracting even more customers, employees, distribution and supply chain partners, and communities.
11. Corporate Social Responsibility *Companies set aside significant fees for lobbyists and politicians who support the personal interests of management and do as little as possible to disclose these activities.
*They often make donations to  organizations favored by the CEO or those of key shareholders or, under pressure, they might make a token donation to a cause to try to change a public relations conversation.
*Little concern is given to the health and wellness of the community or to developing a farm team of future employees, distribution partners, or even customers, etc., because the focus is short-term.
  *Organizations make donations strategic to their purpose, which in almost all cases transparently addresses in one way or another the interests of employees, customers, distribution and supply chain partners, or communities.
*This support can include education or other programs that create a “farm” team for talent or a source of future supply chain or distribution partners, or customers, or investment which help keep the community safe and clean for employees and customers.
12. The Environment *Organizations view the environment as a cost of doing business to be minimized, even at the cost of paying more for legal fees to oppose improvements or kicking potential risks down the road.
*There is little interest of any kind in disclosures and those that are made due to regulations often are minimized to the extent possible.
*Investors don’t care about the risks because they are not disclosed.
  *Organizations view addressing the environment as a form of value creation, by making processes more efficient through less waste, greater re-use, and building greater efficiency into processes with less pollution.
*These companies view these commitments as way to appeal to investors and consumers who value the decreased risks of having a healthier environment, products, and services, whether or not they believe in global warming.

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