A debate has erupted at the highest level of business and politics about a subject with no formal definition in any dictionary. The Enterprise Engagement Alliance solicited input on a definition to help clarify the debate going forward and, following a comment period, has published a formal definition to help provide a framework for more productive discussion. The concept of Stakeholder Capitalism is completely non-partisan as it does not require government involvement. For a complete primer on Stakeholder Capitalism, click here.
“Stakeholder Capitalism seeks to create shareholder returns only by creating value for society – customers, employees, suppliers, communities, and the environment.” This is the formal definition established by the Enterprise Engagement Alliance after a four-week comment period.
“To have a meaningful discussion on Stakeholder Capitalism, we need a clear definition,” says Alex Edmans, Professor of Finance at London Business School and author of Grow the Pie: How Great Companies Deliver Both Purpose and Profit
. “It’s not just semantics. One definition divisively pits stakeholders against shareholders; the other constructively seeks to create long-term value for both.”
The definition was formulated by the EEA with the help of Edmans and with input from Martin Whittaker
at JUST Capital
, the only independent nonprofit organization that tracks, analyzes, and engages with large corporations and their investors on how they perform on the public's priorities:
During the comment period on Linked in, which received 652 views, only two questions were raised: why the use of the “only?” The answer is that companies that do not create value for society cannot be considered Stakeholder Capitalists. Another asked if the definition should include the need to focus on long- versus short-term objectives. The answer is that we seek to keep the definition as broad as responsible.
Explains Martin Whittaker, Founding CEO of JUST Capital, “The term Stakeholder Capitalism was referred to repeatedly in the JUST Capital’s recent virtual event with Forbes announcing our JUST 100, featuring Satya Nadella, CEO of Microsoft; Dan Schulman, CEO of PayPal, Steven Bertoni, VP, Senior Editor, Forbes; Ann Cairns, Executive Vice Chair, Mastercard; Kenneth Chenault, former Amex chair, and Kenneth Frazier, Merck CE0. Yet, none of the official dictionaries provide a definition.” Click here
to hear excerpts from the video show.
JUST Capital’s recent virtual event with Forbes announcing the JUST 100,
Highlighting the consequences of having no formal definition, Bruce Bolger, EEA founder, says, “The World Economic Forum recently published a white paper on “Stakeholder Capitalism Metrics” without a clear definition of the term. We have seen recent debates in academia and in leading business media and have heard Stakeholder Capitalism referred to during the presidential campaign, with all the debate based on how the concept is defined. Those who are opposed use a definition that suggests it means taking from shareholders to satisfy other stakeholders or that it causes CEOs to balance various stakeholder interests more than is already required to run an organization. In fact, Stakeholder Capitalism has organically arisen from management at the front lines looking for a more sustainable way than the current shareholder focus to optimize profitability by aligning the interests of all stakeholders around a common purpose.”
For more information on Stakeholder Capitalism, click here
Editor’s note: Dictionary editors determine definitions based on a review of usage in general language, not by organizations such as the Enterprise Engagement Alliance. The challenge is that the concept of Stakeholder Capitalism, while frequently discussed in conferences and in the media, is rarely done so in the context of a definition, as everyone appears to assume that there is a one. The EEA believes the only other definition, provided by the web site Investopedia, inadvertently confuses the debate because it apparently implies to some that addressing the interests of other stakeholders can be at the expense of shareholders. There is substantial evidence that Stakeholder Capitalism requires no such compromise. In addition, the Investopedia definition fails to include the issue of the environment.
The Investopedia definition
: Stakeholder capitalism is a system in which corporations are oriented to serve the interests of all their stakeholders. Among the key stakeholders are customers, suppliers, employees, shareholders and local communities. Under this system, a company's purpose is to create long-term value and not to maximize profits and enhance shareholder value
at the cost of other stakeholder groups.
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OTHER RESOURCES TO ACTUALIZE STAKEHOLDER CAPITALISM
Communities: The Enterprise Engagement Alliance and Advocate and the Brand Media Coalition free resource centers offering access to the latest research, news, and case studies; discounts, promotions, referrals, and commissions, when appropriate to third-party solution providers from participating coalition solution provider members.
Enterprise Engagement Resources: EEXAdvisors.com provides the only curated online marketplace to access hundreds of solution providers in all areas of human capital management and enterprise engagement throughout the world.
10-minute short course: click here for a 10-minute introduction to Enterprise Engagement and ISO standards from the Coggno.com learning platform.
• The Engagement Agency at EngagementAgency.net, offering: complete support services for employers, solution providers, and technology firms seeking to profit from formal engagement practices for themselves or their clients, including Brand and Capability audits for solution providers to make sure their products and services are up to date.
• C-Suite Advisory Service—Education of boards, investors, and C-suite executives on the economics, framework, and implementation processes of Enterprise Engagement.
• Speakers Bureau—Select the right speaker on any aspect of engagement for your next event.
• Mergers and Acquisitions. The Engagement Agency’s Mergers and Acquisition group is aware of multiple companies seeking to purchase firms in the engagement field. Contact Michael Mazer in confidence if your company is potentially for sale at 303-320-3777.
Enterprise Engagement Benchmark Tools: The Enterprise Engagement Alliance offers three tools to help organizations profit from Engagement. Click here to access the tools.
• ROI of Engagement Calculator. Use this tool to determine the potential return-on-investment of an engagement strategy.
• EE Benchmark Indicator. Confidentially benchmark your organization’s Enterprise Engagement practices against organizations and best practices.
• Compare Your Company’s Level of Engagement. Quickly compare your organization’s level of engagement to those of others based on the same criteria as the EEA’s Engaged Company Stock Index.
• Gauge Your Personal Level of Engagement. This survey, donated by Horsepower, enables individuals to gauge their own personal levels of engagement.
For more information, contact Bruce Bolger at Bolger@TheEEA.org, 914-591-7600, ext. 230.