Lack of Definition, Cohesion, Conviction and a Brand Hamper Stakeholder Capitalism Progress
By Bruce BolgerHow can one create a thriving and diverse movement without a brand name? What do people generally call this emerging type of capitalism that focuses on enhancing returns for investors only by creating value for employees, customers, supply chain and distribution partners, communities, and the environment? Despite having nearly a dozen organizations advocating its principles, the answer is there is no name for the movement, which is why no one even knows it exists even though most say in surveys that they favor its principles.
The Rise and Setback of Stakeholder Capitalism
The Painful Lack of a Definition
Why the Term 'Stakeholder Capitalism' Just Makes Sense
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Shareholder capitalists tried to set back stakeholder capitalism in the early 2020s and nearly succeeded because of the failure of its advocates to unite in a cohesive manner and the lack of a clear definition or a simple name or brand for the movement that anyone can grasp. Despite the headwinds, and lack of a “brand,” the movement thrives organically only because of the increasingly obvious economic, experiential, and societal rewards and even because of necessity, as valued employees, customers and stakeholders gain ever more power through AI and social media.
Inevitably, the rise of stakeholder capitalism will be driven not by corporate communications departments but by investors, CEOs and management that see the financial and other returns of a stakeholder approach to management. Click here for a list of research and related resources supporting the impact of stakeholder capitalism principles.
When in the last century people around the US rose up to oppose discrimination, there were hundreds of independent efforts, but the effort had an umbrella term: the Civil Rights movement.
More prosaically, when manufacturing firms in the later 20th century recognized that they had a quality problem that needed a strategic approach, the term total quality management arose to describe what has turned out to be perhaps hundreds of different systems for enhancing quality.
As Donald Trump’s success exemplifies, every movement needs a name. While the electorate has struggled to understand what Democrats stand for, to Trump’s believers, MAGA says it all.
According to JUST Capital surveys, people across the economic and political spectrum agree that organizations should pay and treat employees a living wage and more; deliver their promises to customers; work in partnership with their distribution and supply chain partners, and support their communities without polluting the environment. The corporate meetings circuit has a growing number of speakers talking about purpose- or human- or people-centric leadership, without always being clear about what people they are talking about. No one but a relative few people in business circles and the business media has a clue that there is any serious movement afoot to reform capitalism in any such a way.While many in the business world acknowledge the emergence of a new paradigm for leadership that addresses a greater focus on people and the needs of all stakeholders, the movement lacks the same cohesiveness that has driven so much progress on racial equity in society and quality management in business, starting with a general term for the effort that embraces all its different forms. Instead, we have a disparate group of organizations advocating for these general principles, none of whom have agreed on any generic umbrella term for all the initiatives nor made any concrete effort to coordinate their actions. One would almost think the various advocates are in competition.
These entities include the Aspen Institute, founded in 1949; the World Economic Forum, founded in 1973 by Klaus Schwab; the United Nations Global Compact, that gave rise to the now also embattled term ESG (Environmental, Social Governance) in 2004; the B-Lab certification founded by Bart Houlahan, Andrew Kassoy, Jay Coen Gilbert, in 2006 that helped give rise to B-corporation statutes in 37 states, about half of them Republican-led; the Shared Values principles of Harvard professors Michael Porter and Mark Kramer in the mid-2000s; the Conscious Capitalism organization, created by John Mackey of Whole Foods in 2009; Maturity Institute in the UK in 2012 created by Paul Kearns and Stuart Woollard; JUST Capital, launched by the hedge funds founder Paul Tudor Jones II in 2014; Economics of Mutuality program founded by Mars in 2020; Imperative21 and others. (The Enterprise Engagement Alliance, founded in 2008, promotes all these concepts and more through its ESM media platform, as well as its own education program strictly focused on specifically how to harmonize the interests of all stakeholders at the practical level.)
Without any common name, all these organizations promote the basic concept that organizations should focus on making money by creating value for all stakeholders and the environment, rather than on extracting value by underpaying and mistreating employees; misleading customers, distribution and supply chain partners; offloading costs on to society and polluting the environment, etc. An effort known as Imperative21 originally founded to create a cohesive message does not appear to have achieved its early objectives.
The Rise and Setback of Stakeholder Capitalism
The first use of the term stakeholder capitalism appears to go back to Klaus Schwab upon the creation of the World Economic Forum in 1971, but there is little doubt that it was the work of R. Edward Freeman and his book Strategic Management: A Stakeholder Approach, published in 1984, that gave rise to the general field of study. His teachings spawned a field of study now embodied in a growing group of professors in the Stakeholder Strategy Interest Group of the Strategic Management Society. It “promotes scholarship that embraces a multi-stakeholder perspective of firm strategy, its antecedents, its boundaries, roles, and values, and its diverse forms of impact and performance.”
Freeman’s work also inspired entrepreneurs such John Mackey of Whole Foods, James Sinegal of Costco, Paul Polman of Unilever, and others who have acknowledged his influence.
When the Business Roundtable in August 2019 issued its proclamation that its members should henceforth focus on addressing the needs of all stakeholdersi, t for the first time shed public light on the theory behind stakeholder capitalism. The statement was reportedly based in part on the work of Freeman. The statement read: “The long-term success of these companies and the US economy depends on businesses investing in the economic security of their employees and the communities in which they operate. From offering competitive wages and benefits to developing training programs to enrich the skills of students and adult workers, leading US employers are creating opportunities for Americans to secure a well-paying job and build a fulfilling career....And when it comes to addressing difficult economic, environmental and societal challenges, these companies are starting in their own backyards – partnering with communities to provide the investment and innovative solutions needed to revitalize local economies and improve lives. These investments and initiatives aren't just about doing good; they’re about doing good business and creating a thriving economy with greater opportunity for all."
The Painful Lack of a Definition
Anticipating the potential for pushback, the Enterprise Engagement Alliance in 2020 set out to create a formal definition based on a review of the extensive research and usage of the term already available in the field predating the Business Roundtable pronouncement, in many cases by decades. In almost all cases, the principles of stakeholder capitalism are viewed simply as a better path to value creation rather than as an effort to address any social issues outside of the purpose, goals, objectives, and values of the organization. Collaborating with Alex Edmans, a Professor of Finance at the London Business School, and Martin Whittaker, CEO of JUST Capital, the EEA published the following definition in May 2020 in ESM that appeared in Forbes in August 2020: “Enhancing returns for investors only by creating value for customers, employees, distribution and supply chain partners, communities, and the environment.”
Pronounced at the height of social tensions, the Business Roundtable statement immediately came under fire from both the right and the left. A statement based on principles more rooted in strategic management theory and total quality management almost immediately became conflated by opponents with either diverting profits legitimately destined to shareholders to assuage the guilt of management (woke management from the right) or virtue signaling and greenwashing, from the left.
In an interview in ESM in 2020, Wayne Winegarden, author of a National Review article opposing stakeholder capitalism, explained his position. His disagreement, he said, boiled down to his definition of stakeholder capitalism: “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.” He did not cite any specific source for this definition.
Winegarden said he agreed with the business management principles of the EEA definition of stakeholder capitalism and that helping organizations implement them could be a profitable business for management advisors “with skin in the game.” But he believes the EEA definition was inconsistent with current usage; that the EEA would be unable to change the trajectory of that definition, and that in fact it is nothing new to promote a stakeholder approach to business, that it’s imply “good practice.”
Peter S. Goodman, the New York Times economics journalist, took down stakeholder capitalism from the other point of view in his book Davos Man. It accused the proponents of stakeholder capitalism of greenwashing, virtue-signaling, and hypocrisy.
He stated in an interview at the time of his book's publication with ESM, “I’m all in with stakeholder capitalism if it means corporations want to commit to principles to address climate change, be kind to employees, and to support labor. In fact, we should applaud that, but you can’t take such pledges to the bank. Those pledges don’t mean we should hand over our democratic rights and our tax revenues to business and the wealthy, eliminate regulations, and give them free rein to restrict market competition because they say, ‘Hey, we’ve got this.’”
Interestingly, a recent article in a conservative journal in Hungary, itself considered a conservative country under its current leadership, advocates for stakeholder capitalism.
Why the Term 'Stakeholder Capitalism' Just Makes Sense
The only companies that have anything to fear of stakeholder capitalism are shareholder capitalists--companies that put the interests of the people who invest the money over those who create the returns—the customers, employees, and other stakeholders without whom there could be no business. Any movement that threatens a comfortable status quo—such as making money based on short-term gains at the expense of creating long-term risk—is obviously going to come under fire. Without a cohesive movement behind this new form of business, the attacks on both sides went virtually unopposed.
If one buys the need for any movement to have a brand, the term stakeholder capitalism makes sense because:
- The name is rooted in academic, ethics, and actual business implementation going back decades having nothing to do with the politics of the early 2020s and beyond. There is already a thriving body of work on the subject, including a new center on stakeholder innovation at the Yale School of Management.
- It reinforces the importance of capitalism and free enterprise, subject only to the moral obligations even Milton Friedman agreed were essential for organizational success.
- The framework has a practical application and framework similar to total quality management, which is now successfully implemented in business worldwide.
- It is non-partisan. The principles as defined in the Enterprise Engagement Alliance are broadly embraced by citizens of both parties and even the left and the right as exemplified by the remarks of Winegarden and Goodman above to ESM and JUST Capital surveys.
- It is unifying. The advocates of the movement generally agree that businesses should stay out of politics except when an issue directly affects its stated purpose, goals, objectives, and values.
- It’s an umbrella term like the civil rights movement or total quality management based on the efforts of potentially hundreds of groups as well multi-sourced research and case studies, rather than on the financial interests of any one group.
To me, it just makes sense for a movement to have a common name and brand that nobody owns. Best of all, it comes from academics and practitioners rather than anyone who has a vested interest in the name.
Enterprise Engagement Alliance Services
Celebrating our 15th year, the Enterprise Engagement Alliance helps organizations enhance performance through:1. Information and marketing opportunities on stakeholder management and total rewards:
- ESM Weekly on stakeholder management since 2009. Click here to subscribe; click here for media kit.
- RRN Weekly on total rewards since 1996. Click here to subscribe; click here for media kit.
- EEA YouTube channel on enterprise engagement, human capital, and total rewards since 2020
Management Academy to enhance future equity value for your organization.3. Books on implementation: Enterprise Engagement for CEOs and Enterprise Engagement: The Roadmap.
4. Advisory services and research: Strategic guidance, learning and certification on stakeholder management, measurement, metrics, and corporate sustainability reporting.
5. Permission-based targeted business development to identify and build relationships with the people most likely to buy.
Contact: Bruce Bolger at TheICEE.org; 914-591-7600, ext. 230.
