How Stakeholder Capitalism Opponents Got the Definition Wrong
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An academic review of over 90 academic studies over 20 years conducted in 2022 before the height of the anti-ESG backlash, finds no support for the definition of stakeholder capitalism used by right-wing proponents. The analysis provides strong evidence that the definitions used to oppose stakeholder capitalism were based on fabricated definitions after the Business Roundtable 2019 pronouncement supporting stakeholder capitalism principles.By Bruce Bolger
The Right-Wing Definition
The Academic Definitions
Exploring the Dark Side of Stakeholder Capitalism
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It is difficult to debate an issue unless one can agree on the definition. A 2022 academic paper suggests right-wing and other opponents of stakeholder capitalism got their definitions wrong either because they did not do their research on the field or because they wanted to create a straw man definition no one could support.
This is apparent in a review of the 2022 academic paper, Stakeholder Engagement: Past, Present, and Future, in which the authors conduct a search of over 90 academic papers to better define the field, catalog the nature of the research so far, and identify areas for future exploration. In the paper, the authors promote their own definition and share others as well. None correspond to the definition created by opponents after the 2019 Business Roundtable updated charter for member organizations to address the needs of all stakeholders without a clear definition of what that means in practice.
Opposition from the left generally is not based on any specific definition, but rather on the idea that stakeholder capitalism is a public relations effort to gild the lily of capitalism and does nothing to stop the rapacious pursuit of profit.
On the other hand, the right wing created a narrative based on the idea that stakeholder capitalism is a “woke” attempt to impose environmental and social investments that divert resources from profit creation and is an effort by big businesses like BlackRock to establish authoritarian corporatism as Mussolini attempted to practice it—a collaboration between government, business and powerful institutions to control the economy.
The Right-Wing Definition
In a 2023 Heritage Foundation article, authors Jeremy Kidd and George Mocsary write : “Stakeholder capitalism holds that companies should create value for all of their stakeholders and not just optimize profits for shareholders. ESG is one virulent manifestation of this concept and would harm human flourishing rather than enhance it. Coercing companies to adopt ESG policies would damage markets and the social order by incentivizing exclusionary and economically inefficient behavior.”
As with every article opposing stakeholder capitalism I have read to date, the article goes on to portray all the dangerous implications of this definition without anywhere referring to where these ideas come from. Nowhere in the article do the authors identify specifically the organizations or people they are referring to when they write:
“Stakeholder capitalism is being pushed both by ideological partisans who have little respect for ownership rights and, perhaps worse, by those who would benefit financially from more exclusionary capital markets. Moreover, the managerial incentives created by environmental, social, and governance (ESG) initiatives are likely to hurt all constituencies to the benefit of managers who are charged with overseeing their implementation. Still further, the ESG movement is poised to create a toxic mix of government and business, the end result of which will be the broad destruction of social value and a decline in human flourishing.”
The Academic Definitions
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Academic researchers apparently understand the challenges of studying a field that lacks a clear definition. In their paper, Stakeholder Engagement: Past, Present, and Future, Daniel Laude and Sybille Sachs of the HWZ University of Applied Sciences in Business Administration, Zurich and Johanna Kujala, Heta Leinonen and Anna Heikkinen.Tampere University, Finland, write that “the fragmentation of stakeholder engagement research can also be seen in the focal issues of the articles. All in all, in the 90 articles analyzed, there were no particularly prominent focal issues and, rather, a wide variety of issues were addressed. Ten of the articles focused on corporate social responsibility, of which six were published in the Journal of Business Ethics. Innovations and innovativeness were addressed in nine articles, and six of these articles were published in the 2020 special issue of the Journal of Business Research. Moreover, reporting was the focal issue in four articles, three of which were published in the Journal of Business Ethics.”
They cite Michelle Greenwood’s 2007 definition of stakeholder engagement as “the practices that the organization undertakes to involve stakeholders in a positive manner in organizational activities.” They say this has since become the most-cited definition in the business and society literature. Greenwood is a professor at Monash University in Australia.
In a similar fashion, Giacomo Manetti and Simone Toccafondi of the University of Florence, Italy, in a 2012 paper, stress that stakeholder engagement constitutes “a process that creates a dynamic context of interaction, mutual respect, dialog, and change, not a unilateral management of stakeholders.”
Based on their academic review, the authors proposed the following definition: “Stakeholder engagement refers to the aims, activities, and impacts of stakeholder relations in a moral, strategic, and/or pragmatic manner.”
They stress that stakeholder engagement constitutes “a process that creates a dynamic context of interaction, mutual respect, dialog, and change, not a unilateral management of stakeholders.”
The closest any of the posited definitions prior to the 2019 Business Roundtable press release come to challenging the rights of shareholders, one definition states that: “Stakeholder capitalism holds that companies should create value for all their stakeholders and not just optimize profits for shareholders.”
What appears to confuse opponents is the ethical component to stakeholder capitalism. “According to our review...most authors relate a moral connotation to stakeholder engagement. Stakeholder engagement is moral if the organization has good intentions and/or the relationship is reciprocal and voluntary.”
In spring 2020, seeing the dangers of debating an issue without a clear definition, the Enterprise Engagement Alliance, based on an analysis of the available literature at the time, developed a definition with the additional help of Alex Edmans, Professor of Finance at the London Business School, and Martin Whittaker, CEO of JUST Capital: “enhancing returns for investors only by creating value for customers, employees, distribution and supply chain partners, communities, and the environment.”
Exploring the Dark Side of Stakeholder Capitalism
In their conclusions, the authors acknowledge the need for research into the potential for unintended consequences of stakeholder engagement business practices but nowhere is there any reference to a definition even applying the attempt to create a cabal of business interests to impose woke concepts on society. As of the 2022 writing of the paper, they didn’t list corporatism or statism or shareholder dangers as a specific risk to be researched.
Rather, they write: “While we have suggested that the dark side can occur unintentionally and intentionally, little is known about the overall dynamics of unintentionality and intentionality and about the role of misalignment or malintent in stakeholder engagement. Regarding the aims of stakeholder engagement, issues such as misfit or misuse of stakeholder engagement for firms’ or stakeholders’ purposes, or how the characteristics of the aims relate to moral reasons such as value incongruence, strategic reasons such as interest conflicts, and/or pragmatic reasons such as wicked social issues, remain largely underexplored.”
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.
