10 Big Fallacies About Stakeholder Capitalism
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issues raised by opponents of Stakeholder Capitalism both on the right and the left. The surprising definition controversy resulted from the 2019 decision by the Business Roundtable to broaden the definition of the purpose of an corporation to address the interests of all stakeholders.By Bruce Bolger
As noted in the recent ESM article by four professors involved with the Stakeholder Capitalism movement (See ESM: Guest Opinion: Stakeholder Capitalism Is a 40 Year Old Field—Partisans Have Hijacked It), opponents on both the right and left have politicized a long-standing nonpartisan business concept based on recently created definitions that incorrectly conflate the movement with “Woke” or “Fig Leaf” capitalism.
With over 30 years of easily documented experience advocating for a focus on stakeholder engagement in business as editor or publisher of multiple business media over that time, I have more qualifications than most to speak authoritatively on the history and definition of the Stakeholder Capitalism business movement.
1. Stakeholder Capitalism was not created by the Business Roundtable 2019 revision of its charter of the organization to address all stakeholders. It goes back at least 38 years, well before even ESG and CSR, to the book, “Strategic Management: A Stakeholder Approach,” by R. Edward Freeman of the University of Virginia Darden School of Business. Klaus Schwab of the World Economic Forum first used the term in the 1970s in the context of the ability of business to address key societal issues, not to advocate for the diversion of profits to the pet causes of CEOs and boards.
2. It is simply better business. Stakeholder Capitalism enhances returns for investors by creating value for customers, employees, supply chain and distribution partners, communities, etc. The fact that Stakeholder Capitalism creates better outcomes for all stakeholders, without whose loyalty and commitment there could be no returns for shareholders, has nothing to do with companies feeling pressured to give money to right- or left-wing causes or to make hollow gestures supporting DEI (Diversity, Equity, Inclusion) or the environment.
3. There is no guarantee of enhanced financial results, especially when measured in the short term. Marketing and investment decisions, market and economic factors, etc. can affect even the best managed companies. ESG (Environment, Social, Governance) funds should be studied carefully before investing given prevalent greenwashing and conflicting methodologies for selecting qualified companies.
4. The movement has nothing to do with socialism. This is a modern form of capitalism, unless one believes that a focus on creating wealth through rather than extracting wealth from stakeholders or offering employee stock ownership plans are a form of socialism.
5. No government intervention nor changes in corporate charters are required. Since stakeholder management is simply better business, taxpayers do not need to foot any bills. Provided that a public company clearly discloses its purpose and mission to all investors and other stakeholders in its human capital reports, there should be no cause to change a corporate charter unless obtaining a B corporate certification is seen as a marketing advantage. Stakeholder Capitalists save taxpayers money because they provide higher levels of pay and benefits to employees who are therefore less likely to draw upon government benefit programs or emergency room services.
6. Shareholders are not robbed to line the pockets of special interests as they currently are under Shareholder Capitalism. Many of the very same people who say they oppose Stakeholder Capitalism take money from companies supporting left-and right-wing causes under Shareholder Capitalism. Stakeholder Capitalist companies clearly disclose their purpose, values, and contributions so that investors and other stakeholders can determine to what extent they wish to engage with the company based on its values.
7. The movement is still in the early stage. To the optimists who think Stakeholder Capitalism is about to take off, there remain significant impediments. Most citizens have never heard of the concept, let alone business people. Most boards, CEOs and management still do not understand the concept or economics, let alone the implementation process. Almost no management has any training in a stakeholder approach to management nor how to align the many organizational human resources and marketing processes currently used to engage people--generally in an ad hoc, siloed, and poorly integrated manner.
8. The concept cannot be owned nor trademarked, not by by Conscious Capitalism, Inc., Economics of Mutuality, the World Economic Forum, B Lab, JUST Capital, the Enterprise Engagement Alliance, etc. It's a big open tent, much like the world of quality management in manufacturing, in which many advisory firms provide competing solutions.
9. This has nothing to do with compliance or regulations. Forcing companies to adopt Stakeholder Capitalism is like forcing people to wear masks—many will resist, poorly comply, and then say the rules didn’t work.
10. Stakeholder Capitalism is not “diversity theater,” the common practice of appointing DEI executives or making contributions to appease minority communities. Stakeholder Capitalists see developing customers, talent, supply chain and distribution partners in disadvantaged areas or among minority communities as opportunities to maximize their marketplaces for customers, talent, and supply chain and distribution partners, as well as ways to bolster their relationships with the communities where they do business.
Not only is Stakeholder Capitalism non-partisan--a big open tent open to the left and right--it is non-sectarian. That the concept is connected to the nearly universally accepted concept of the Golden Rule we must assume is only a coincidence.
Master the “S” of Environmental, Social, Governance (ESG), A.k.a. Stakeholder Capitalism
The Enterprise Engagement Alliance at TheEEA.org is the world’s first and only organization that focuses on outreach, certification and training, and advisory services to help organizations achieve their goals by fostering the proactive involvement of all stakeholders. This includes customers, employees, distribution and supply chain partners, and communities, or anyone connected to an organization’s success.
Training and Thought Leadership
- Founded in 2008, the Enterprise Engagement Alliance provides outreach, learning and certification in Enterprise Engagement, an implementation process for the “S” or Social of Stakeholder Capitalism and Human Capital Management and measurement of engagement across the organization.
- The Enterprise Engagement Alliance provides a training and certification program for business leaders, practitioners, and solution providers, as well as executive briefings and human capital gap analyses for senior leaders.
- The EEA produces an education program for CFOs for the CFO.University training program on Human Capital Management.
- Join the EEA to become a leader in the implementation of the “S” of ESG and Stakeholder Capitalism.
Engagement Digital Media and Marketplaces
- The ESM information portal and The Enterprise Engagement Advisors Network solution provider marketplace cover all aspects of stakeholder engagement, and the EEA information library lists dozens of resources.
- The RRN information portal and Brand Media Coalition marketplace address the use of brands for gifting, incentives, recognition, and promotions. The BMC information library provides information and research resources.
Video Learning
The EEA Human Capital Management and ROI of Engagement YouTube channel features a growing library of 30- to 60-minute panel discussions with leading experts in all areas of engagement and total rewards.
Books
- Enterprise Engagement for CEOs: The Little Blue Book for People-Centric Capitalists. A quick guide for CEOs.
- Enterprise Engagement: The Roadmap 5th Edition implementation guide. A comprehensive textbook for practitioners, academics, and students.
Enterprise Engagement Advisory Services
The Engagement Agency helps:
- Organizations of all types develop strategic Stakeholder Capitalism and Enterprise Engagement processes and human capital management and reporting strategies; conduct human capital gap analyses; design and implement strategic human capital management and reporting plans that address DEI (Diversity, Equity, and Inclusion), and assist with managed outsourcing of engagement products and services.
- Human resources, sales and marketing solution providers profit from the emerging discipline of human capital management and ROI of engagement through training and marketing services.
- Investors make sense of human capital reporting by public companies.
- Buyers and sellers of companies in the engagement space or business owners or buyers who seek to account for human capital in their mergers and acquistions.
Click here for complete information on Enterprise Engagement Alliance benefits and to join.
For more information: Contact Bruce Bolger at Bolger@TheICEE.org or call 914-591-7600, ext. 230.
