Stakeholder Capitalism: Why Something We All Can Agree Upon Struggles to Break Through

When asked in surveys by the JUST Capital think tank and outreach group what people want from business, a large majority in both political parties want companies to produce safe products, provide good service, price their products fairly, treat their employees and other stakeholders well, and be good citizens in the communities where they operate. Here’s why a subject we all can agree on has become a lightening rod on the right and left and why it’s a topic both sides should agree on. 
 
By Bruce Bolger

The Benefits to Conservatives
The Benefits to the Left
 
In a society whose current media business model is sowing and prolonging discord, it’s very hard for a generally agreed upon concept to garner much attention except among avid readers of op-ed pages and political media.
 
Almost no one has ever heard of Stakeholder Capitalism, even since the Business Roundtable updated its corporate charter to address the needs of all stakeholders in August 2019. This pronouncement unleashed a debate that has only grown related to ESG (Environmental, Social, Governance) and “woke” capitalism appearing in many general and political media, from the New York Times, Washington Post, Wall Street Journal, the Economist, CNBC, to the National Review and Epoch Times on the right and Jacobin on the left. See ESM: The Case Against Stakeholder Capitalism December 2022.
 
Despite JUST Capital surveys suggesting general bi-partisan support for Stakeholder Capitalism principles, the virulent opposition and growing coverage in the media, only about 700 people follow the subject on Linkedin, and the Stakeholder Capitalism Twitter hashtag generates on average less than 15 tweets a day, versus about 16,000 tweets a day for #marketing, according to Tweetbinder.com.
 
Whether or not the subject gains traction remains to be seen, but as long as people continue to invest in ESG-oriented funds and organizations, and until there is a general agreement on the definition, the debate will continue. Here is the definition used by the Enterprise Engagement Alliance, based on actual usage in business and academic work over nearly 40 years as well as on the Davos Manifesto, the code of ethics for the World Economic Forum: Stakeholder Capitalism enhances returns for investors by creating value for customers, employees, distribution and supply chain partners, communities, and the environment.
 
Based on this definition, there’s something for both the right and left in Stakeholder Capitalism.
 

 
1. It is just better business—Stakeholder Capitalism has nothing to do with “woke” capitalism. It’s about enhancing returns for investors by creating value for those upon whom we depend to create wealth: customers, employees, supply chain and distribution partners, and communities. Stakeholder Capitalists perform better over time, as demonstrated by multiple studies, because they engage the people whose purchases or work actually create the wealth, rather than find ways to manipulate them and extract wealth.
 
2. It’s based on the Golden Rule fundamental to the faithful of almost all religions: Stakeholder Capitalists make money by treating others as we would ourselves like to be treated; i.e., by creating wealth in a way that motivates the stakeholders critical to helping us produce that wealth in the first place, rather than extracting wealth from them and the environment in a way that lessens their commitment to our success and postpones or hides inevitable liabilities.
 
3. It’s practical and sensible. The world of ISO 9001 quality management standards and the new ISO 10018 People Engagement and ISO 30414 Human Capital standards are hardly revolutionary: they provide a practical implementation framework that saves time and money, enhances return on investment, while creating better experiences for all stakeholders, including the CEOs, C-suite, and board directors.
 
4. It’s voluntary. ISO and related standards are not required, nor are audits and certification. Let the marketplace decide which types of organizations gain the advantage. Note that while such practices are voluntary, the European Union’s new regulations on stakeholder practices will require detailed disclosures on how many organizations treat their employees; how employees in their distribution and supply chains are treated, as well as their customers and the communities in which they operate.
 
5. No government is required. Stakeholder Capitalists do not require as much regulation, because their goal is not to impose costs on their communities and to view solving problems related to their businesses as opportunities.
 
6. It lowers taxes. Because Stakeholder Capitalists see paying taxes as a form of support for the communities upon whose resources their stakeholders depend for infrastructure, health care, and education, and because they pay their employees a living wage, provide healthcare and other support, and minimize their impact on the environment, there is less need for taxation.
 
7. It’s more transparent. Organizations with clear purpose statements backed up by auditable human capital reporting that shares their methodologies, metrics, and continuous improvement processes provide investors and other stakeholders the information they need to determine if they wish to engage. If an investor doesn’t like the company’s purpose or practices, they can take their money elsewhere, rather than force the organization to be something it was never conceived to be for the benefit of a few.
 
8. There is less litigation. Basing success on a clearly stated purpose, goals and objectives, and addressing and aligning the interests of all stakeholders toward that common purpose reduces lawsuits, legal fees, because there are fewer complaints and bad press from disgruntled customers, employees, communities, and other stakeholders.
 
9. It reaffirms faith in free enterprise. There will be less pressure for Democratic Socialism or other forms of autocracy if businesses become a positive force in their communities.
 
10. Better experiences for management. Because Stakeholder Capitalist companies are run using business operating systems based on a clear organizational purpose, goals, and objectives; specified methodologies and priorities, clear metrics, and a continuous improvement process, there is less time wasted on fire drills, meetings, and infighting.
 

 
1. Stakeholder Capitalism sees employees, customers, and their supply chain and distribution partners and communities as a source of creating rather than extracting wealth. So, instead of extracting value from stakeholders and moving on, Stakeholder Capitalists cultivate their relationships with all stakeholders to engage them in their purpose, mission, goals and objectives. By definition, the business model is built on paying all employees a living wage, health care and other important benefits; meaningful job design, voice and autonomy; providing professional development and opportunities for improvement, rewards and recognition, etc. and delivering promises to all stakeholders.
 
2. Employee and customer voice are critical in Stakeholder Capitalism. The very foundation of Stakeholder Management is to listen to stakeholders, just as participation in the form of “quality circles” is critical in any manufacturing dedicated to Total Quality Management.
 
3. More transparency for stakeholders to judge for themselves. Stakeholder Capitalists publish Corporate Responsibility Reports with a clear purpose statement that enable stakeholders to evaluate and compare their purpose, practices, and outcomes on key areas related to the environmental, social, and governance aspects of their businesses. Companies truly dedicated to strategic people management have their reports independently audited. As noted above, the new EU regulations on stakeholder disclosures will spur the publication of even more information.
 
4. A better climate for collective bargaining by creating value. Enterprising unions will discover that they can play an important role in the management of employee voice, wage and promotion fairness, employee resource groups, and helping to represent employee interests as a partner rather than as an opponent to achieving the organization’s purpose. Ironically, unions can help organizations manage employees more effectively by reducing some of the internal costs of HR administration, and giving the unions and employees a true stake in the outcome for workers and the enterprise.  
 
5. Employee stock ownership to foster greater engagement and agency. While the definition of Stakeholder Capitalism theory does not specifically call for worker ownership, it’s a choice taken by many Stakeholder Capitalists because it is seen as highly motivational to employees resulting in higher productivity, retention, and referrals, and because it has unique tax benefits enabling owners to defer for decades the taxes on their sale of equity or LLS memberships. See ESM: ESOP Expert—Employee Ownership Is a Capitalist Tool.
 
6. It is better for communities. Stakeholder capitalists view their communities as a future resource for employees, supply chain and distribution partners, so invest in activities that encourage local stakeholders, such as equal opportunity education or local business activities.
 
7. It’s better for the environment. Stakeholder capitalists seek to reduce risk and long-term costs by minimizing their impact on the environment and encouraging wellness and safety in the workplace, which in turn leads to higher productivity and attendance.
 
8. Better experiences for customers. Stakeholder capitalists focus on maximizing the loyalty of customers, so they invest in ways to optimize the customer experience and quality and safety of their products and services. The result for consumers are less hold times; faster-turnaround, greater integrity in marketing, and overall better experiences.
 
9. Better experiences for employees. Organizations that view employees as an asset take good care of them, which usually results in greater autonomy, voice, job design effectiveness, support, respect, appreciation, vacation, and family time—the intangibles that can often make the difference between a good and great job.
 
10. Less litigation. Customers, employees, communities, and other stakeholders have less reason to sue companies that focus on addressing their interests and the environment.