2024 State of Stakeholder Capitalism: Set Back by Greenwashing

While the market forces driving a shift to stakeholder management continue to grow, and the term “stakeholder capitalism” comes up almost daily now in Google Alerts, the absence of the subject from the Davos Agenda and most media coverage demonstrates the damage done by greenwashing to the brand. Here's the Enterprise Engagement Alliance's view of the state of the field.

Key Conclusion: Greenwashing Will Be Overcome for Economic Reasons
The Battle Will Be Fought in the Free Market, not Voting Booths

By Bruce Bolger

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As anyone who followed the events last week at the World Economic Forum knows that one of the big headlines was the absence of discussion of the subject of ESG (environmental, social, governance) and stakeholder capitalism. Despite the release of at least three important studies about the potential impact of stakeholder capitalism and ESG, public relations on the subject was minimal, even though two subjects that were at the top of the agenda—AI and geopolitical instability—are intertwined with the debate about stakeholder capitalism.

Key Conclusion: Greenwashing Will Be Overcome for Economic Reasons

Here's an overview of the state of stakeholder capitalism from one who has followed the movement since the late 1980s.

1. Greenwashing set back stakeholder capitalism and its management principles. When leading organizations such as the World Economic Forum, Business Roundtable, and BlackRock, touted stakeholder capitalism with no effort to clearly define it or a stated process to implement it or back it up with other tangible actions, it was ripe for the criticism it received from both the right and left. It did not help that investment companies created ESG funds with no clear standards, leading to accusations of deception or worse--that many were based on global corporatist elites imposing their vision of society onto investors, depriving ordinary pensioners of optimal returns. The failure of the early proponents to focus on the original principles of value creation having nothing to do with diverting organization resources to political causes enabled a media eco-system of misinformation to flourish literally unopposed to my knowledge other than by the Enterprise Engagement Alliance. That the World Economic Forum Davos event, headlined "Rebuilding Trust," failed to double down on its commitment to stakeholder capitalism, or even mention three related compelling studies published related to trust at the event, speaks volumes.

2. Economic disparities, climate change and worker fear of AI will be major causes of the geopolitical disruption feared by CEOs. Instead of focusing on rebuilding trust, according to Fortune coverage, the CEOs talked mostly about geopolitical disruption and AI. Even though immigration clearly is being driven by both climate change and poverty, they are not the only cause of the risks of geopolitics and AI. The vast disparity between the 1% and everyone else cited in the recent Oxfam report Inequality Inc.! and the prevailing lack of trust in all institutions identified in the latest 2024 Edelman Trust Barometer are in fact primary reasons for the willingness of people to embrace radical change. To talk about these geopolitics and AI as the No. 1 and 2 issues of CEOs today without mentioning ESG and stakeholder capitalism raises further questions.

3. Greenwashing, stakeholder capitalism and ESG will become easy targets by shareholder capitalists in the coming election. As elaborated on in a recent Linkedin article on why the EEA will not endorse politicians based on their stances on the subject, the growing anger of American workers demonstrated by increased labor action and historically low employee and customer engagement levels, along with actions such as the recently proposed New Hampshire law outlawing ESG investment with criminal penalties, not to mention an unabashed shareholder capitalist as the likely Republic candidate, one can anticipate that shareholder capitalism, stakeholder capitalism and ESG will come up as bogey men depending on the point of view. Given greenwashing and the retreat by elites from stakeholder capitalism and ESG, it will be difficult to defend accusations that it is being led by the world’s leading globalists who have now gone underground with their plot to rob retirees of their rightful investment returns to further their nefarious plot to take over the world. With the brand of stakeholder capitalism conflated with “woke” and so rapidly retreated from by its most public proponents just a few years ago, what shareholder capitalist wouldn’t pursue that straw man strategy? How many American working people have trust in big business to protect their interests, not to mention the World Economic Forum, Business Roundtable, and BlackRock, etc.? It’s a straw man issue because the opponents invented a perverted definition for what is simply a better way to do business, more like total quality management in manufacturing than an ideology. There’s no need for legislation so almost no traction for politicians or policy for proponents to defend.

4. The biggest challenge is continued and deliberate confusion on the definition. Although the Business Roundtable principles provide a practical framework, it did not come with any formal definition sufficient to counter the conflation with woke, eco-corporatism, or greenwashing. Nor did any other organizations coalesce around the Enterprise Engagement Alliance definition published in Forbes in 2020. (It was created with significant input from Alex Edmans, Professor of Finance of Grow the Pie, and Martin Whittaker, CEO of JUST Capital, an outreach group that focuses on the economic and societal benefits of stakeholder management principles, and is based on an analysis of all the previous research we could find on stakeholder capitalism.

The Battle Will Be Fought in the Free Market, not Voting Booths

Because stakeholder capitalism does not require government intervention, the battle will be fought in the free market. And, the power of the message is demonstrated by the extent of the greenwashing it has generated: organizations would not invest money in deceiving people unless they saw a return on investment. The following factors are coming into play.

The waste and damage of of shareholder capitalism. Based on 50 years of actual usage before its coming out party in 2019, stakeholder capitalism enhances returns for investors only by creating value for customers, employees, distribution and supply chain partners and communities, versus treating stakeholders as just another asset to be mined like coal or uranium. It is not a panacea for egotistical or ad hoc leadership, poor market calculation or execution, under-capitalization, poor forecasting, or unforeseeable market or weather-induced crises. Click here for a list of extensive research and determine for yourself if there is any basis for believing that stakeholder capitalism is simply a more sustainable path to sustainable returns and value creation. Click here for a series of Enterprise Engagement Alliance YouTube videos with over a dozen experts documenting the waste in human resources, marketing, customer service, labor-management relations, and job design. The Oxfam study, Inequality Inc! makes a compelling point about the inability of shareholder capitalism to optimize the prosperity that could drive even better returns for investors by creating more potential consumers for the products and services created by our economies.

Investor pressures. Despite the so-called rush of investors from ESG funds, the outflow is a rounding error compared with total assets and much has been attributed to withdrawals from BlackRock, the company most under attack for greenwashing. The closing of ESG funds is a healthy response to the lack of transparency in ESG fund management.

Demand for transparency. The general media is acting as if it doesn’t exist, but the EU Corporate Sustainability Reporting Directive (CSRD) promises to have as much if not more impact on corporate sustainability reporting than the General Data Protection Regulation (GDRP) has had on permission and privacy in marketing. Although barely mentioned at Davos, 150 global companies committed themselves to transparent Stakeholder Capitalism Metrics disclosures aligned with leading standards and the coming EU CSRD.

Analytics is illuminating the effiencies of shareholder capitalism. As highlighted in a recent EEA YouTube series of shows on marketing, customer service, labor management, human resources and job design, business builds enormous waste into day to day processes that go largely unmeasured and are simply built into the bottom line, much like poor quality management often is in manufacturing. The power of customer relationship management and human resources information systems technology, along with the growing focus on systems thinking in human resources originally advocated by Dave Ulrich and his team at RBL Group, and now by human resources visionary Josh Berson, or by the Enterprise Engagement Alliance in the realm of stakeholder management implementation, are illuminating the long overlooked connections between long-term growth and returns and having employees passionate about their jobs, customers and distribution partners who love the company, and a general community of people happy to refer customers and talent, etc.

A new paradigm for executive leadership is emerging. While US citizens in surveys express skepticism that businesses would authentically embrace stakeholder capitalism practices, they honor CEOs who do. Multiple Linkedin posts by me on the leadership style of CSX CEO Joe Hinrichs generated nearly 30,000 views and about 500 likes, dozens of comments with not a hint of disaffection even from people with no obvious current connection to CSX.

The power is flowing to customers as a result of social media. In my career, I have watched as the power has shifted from manufacturers, to retailers, and now to consumers, not only through online shopping but the power of social media. People can now independently and/or collectively make or break brands, no matter how much they might spend on advertising as proven by the Bud Light controversy. The ability to use advertising and highly paid celebrity influencers as a competitive barrier is being undermined by TikTok, Instagram, ratings systems like TripAdvisor, Google, or Yelp, and cannot be easily manipulated. This is democratizing marketing with an impact few have seriously measured, and will drive the need for a more meaningful way to manage the true impact of marketing based on both outcomes and inputs.

The race for talent is not going way. While a recession and AI may increase unemployment, they will not reduce the value of talent, not just talented financial, engineering, sales, or marketing leadership, but skilled, committed and experienced employees at every level of the organization, most importantly those dealing with customers, distribution partners, and overseeing and maintaining technology. Companies bent on getting people back into the office full time without a value proposition for employees in terms of commuting time and money will find that the people most likely to leave over time are those they most wish to keep. The employees of organizations that continue to bury their heads in the sand on this issue will have more social media tools to find places with cultures better suited to their desires.

The compelling economics of distribution partner relationships. One of the greatest challenges for many organizations is the desirability of selling through channel partners willing to sell mostly based on performance if your product or service warrants their attention, a task much easier said than done. Part of stakeholder management value creation is engaging these key stakeholders in the organization’s purpose, goals, and objectives with a win-win value proposition.

The value of supportive supply chains. Having your suppliers committed to your organization’s purpose, goals, and objectives comes in handy when your organization needs special assistance on pricing, delivery, job requirements, etc., versus others who beat their suppliers up on pricing and terms.

The benefits of supportive communities and strategic philanthropy. Companies such as Amazon which in theory should be welcome additions to a community have learned the hard way that it isn’t always so easy. Having supportive communities doesn’t mean giving out random donations to local charities; it means have a long-term mutually beneficial strategy for working with the community to develop new sources of talent or future distributors and supply chain partners.

A growing consensus on the environment. People may not agree on global warming, but almost everyone wants to breathe clean air, drink safe water, and be free of risks of environmental disasters. Affluent people of all ages around the world who have the choice are voting with their feet in terms of their investments, products and services purchased, and even the organizations they work for or there wouldn’t be so much greenwashing.

Progress on diversity, equity, and inclusion will be based on the economics, not guilt. Whether social activists like it or not, the argument has shifted from moral rectitude and retribution to value creation. How can organizations take advantage of the enormous wealth in every community in the form of employees, customers, supply chain and distribution partners, and partners? One can resist taking blame or accounting for the transgressions of our forefathers, but who can argue that it makes sense to restrict investors, customers, employees, supply chain and distribution partners to only one class or ethnicity of people? And how can one attract diverse stakeholders without having diverse stakeholders? DEI will move from a focus on sensitivity training to creating a genuinely diverse workplace and customer base, with understanding forged through opportunities for collaboration, socialization, and celebration that develop understanding through action and experience, not lectures or exercises.

The subject is increasingly taught in colleges and universities. While elite business organizations have backed off the subject, students around the world are increasingly being introduced to ESG topics including the subject of stakeholder capitalism.

ESM Is Published by The EEA: Your Source for Effective Stakeholder Management, Engagement, and Reporting

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EEA YouTube Channel with over three dozen how-to and insight videos and growing with nearly 100 expert guests.

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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:

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