Moving Toward a Win-Win Capitalism the Right and Left Can Agree On
If you agree, you can express your support on this newly launched Change.com petition in support of stakeholder capitalism principles.
By Bruce Bolger
Phase 1:1940s to 2020: Under the Radar Screen Theory Development, Research, Serious Experimentation
Phase 2: Out-in-the-Open Scrutiny, Controversy, and Setbacks—August 2019 to 2024
Phase 3: It’s Just Better Business—2024 and Beyond
Is Stakeholder Capitalism a Model Most Americans Can Agree on?
Click here to subscribe to the ESM weekly e-newsletter.
The decades-old theory and practice of stakeholder capitalism seeks to address a long-standing crisis. Income inequality has reached record highs.
Employee and customer engagement remain at record lows according to Gallup and the American Customer Satisfaction Index, as does trust in business, according to Edelman. Worldwide waste due to disengagement could exceed $7 trillion according to Gallup research, with none of it showing up anywhere on organizational balance sheets due to gaps in current accounting practices. The toll in unnecessary stress and unhappiness remains uncounted but high among employees, consumers and other stakeholders.Under such conditions, how could stakeholder capitalism—a practical approach to business reform--get derailed by politics and how does it self-correct after a phase of greenwashing and virtue-signaling? After all, it’s a non-partisan movement that requires no legislation, political involvement, and can benefit everyone. The three phases of stakeholder capitalism proposed in this report reflect the evolution of any new movement.
After getting derailed by the greenwashing, virtue-signaling and the political response of the early 2020s, this article contends that stakeholder capitalism has entered its third phase with a focus on going back to its roots based on a more holistic process for ethical value creation and impact measurement in management. By enhancing returns for investors only by creating value for employees, customers, supply chain and distribution partners, and the environment, businesses can create a virtuous circle for investors and society by fueling ever-growing prosperity for the benefit of all.
To mark our determination that the field has entered a third phase, the Enterprise Engagement Alliance has created an updated framework for stakeholder capitalism to address some of the ambiguities never addressed by its proponents in a coherent, unified manner. After all, no one went beyond general language to specify a framework for stakeholder capitalism principles that specifically address that path to value creation; the role of ethics and culture; values; corporate sustainability, responsible technology, governance, and impact measurement and transparency. This is our contribution.
If you agree with this framework, please register your support at Change.org or email suggestions to Bolger@TheEEA.org.
Phase 1:1940s to 2020: Under the Radar Screen Theory Development, Research, Serious Experimentation
With elements of the concept going back to the thinking of Adam Smith in the 18th century, the idea of harmonizing the interests of all stakeholders entered phase 1 when it began to crystallize after World War II with the work of businesspeople, organizations, and academics, not social activists. Perhaps this is because of the remarkable demonstration of the benefits of harmonizing the interests of multiple stakeholders with a common purpose, goals, and objectives displayed by the Allies during the war and the era of the 1960s in which government and business worked together to put our veterans to work during a time when the top tax rate was over 80%. The early advocates of these principles included management consultant Peter Drucker, total quality management expert W. Edwards Deming, the Stanford Research Institute, the World Economic Forum, the author and professor R. Edward Freeman’s 1984, Strategic Management: A Stakeholder Approach. All in various ways identified the value of addressing or harmonizing all the stakeholders involved with an endeavor: Freeman cemented the name and overall theory and framework.
During this long first phase lasting until about 2020, companies such as Costco, Wegman’s, Whole Foods, Nucor Steel, WD-40 successfully implemented the model; over a dozen leading financial institutions created the Who Cares Wins report for the United Nations in 2004. A similar stakeholder approach emerged during the late 20th century in the world of total quality management, which also addressed the concept of engaging all relevant stakeholders. Starting in the 2000s, not-for-profit B-Lab tested and proved the sustainability of a stakeholder approach to business management through a certification process now with over 10,000 companies worldwide and growing.
Over the course of phase 1, academics produced nearly 100 studies on the subject, along with research produced by Professor Alex Edmans of the London Business School, Gallup, Enterprise Engagement Alliance, JUST Capital, Trust Index etc. and many others during that period finding a link between having highly engaged employees and share price results.
Phase 2: Out-in-the-Open Scrutiny, Controversy, and Setbacks—August 2019 to 2024
This article proposes a second phase beginning in late 2019 when a practical way to enhance management that is good for society entered the spotlight and almost immediately became conflated with corporate social responsibility. This public attention, as anticipated by some at the time, set back the movement and characterizes the period of phase 2. The controversy when the Business Roundtable published its 2019 charter and the Davos Conference in 2020 that dusted off its original founding Davos Manifesto of 1973: “The purpose of professional management is to serve clients, shareholders, workers and employees, as well as societies, and to harmonize the different interests of the stakeholders.” Multiple CEOs, including Larry Fink of BlackRock, Brian Moynihan of Bank of America, Marc Benioff of Salesforce, Lynn Forester de Rothschild of Pope Francis’s newly created Council for inclusive Capitalism made pronouncements about the need to address human and environmental needs in the same breath as the term stakeholder capitalism, conflating a decades-old movement to make capitalism more effective and better for society with the concept of corporate social responsibility.
During phase 2, also demonstrating the popularity of stakeholder capitalism and ESG and DEI principles, companies, organizations, and investment firms jumped on opportunities to sell people on services or investment products with little proven benefit, many tainted by greenwashing and virtue-signaling. In many cases, ESG investment instruments with vague criteria bordering on deceptions launched with fanfare. It came as no surprise when many of these ESG funds underperformed.
The public statements and dubious claims became swept up in politics along with ESG (environmental, social, governance) and DEI (diversity, equity, inclusion), so much so that many companies have dropped use of any terminology likely to attract a negative reaction. Notably, the Conference Board, which ran number programs on stakeholder capitalism and ESG in that period, has backed off the terminology. As one business media publisher recently told me, many organizations, especially those that do business with the federal government, generally have proceeded with practical approaches to stakeholder management, ESG, and DEI, without flag waving to avoid unnecessary attention.
It may sound ironic, but the stakeholder capitalism movement owes a debt of gratitude to the Heritage Foundation, Harvard Professor of Law Lucien Bebchuk, and New York Times reporter Peter S. Goodman, the author of Davos Man, all opponents. From various standpoints, they among others accused these organizations of hypocrisy, greenwashing, virtue-signaling, and of “woke” capitalism that diverts profits to arbitrary social clauses at the expense of shareholders. Instead of rallying to support the cause, the proponents largely backed off their public statements so that now the terms stakeholder capitalism, ESG, or DEI have become much less frequently referenced in company statements. Their silence only confirmed the accusations of opponents. After all, if these concepts are so much better for business, why not stand up for the cause? The only problem, what opponents took issue with was "woke" capitalism, not stakeholder capitalism. One would have difficulting finding much in the literature on the subject suggesting that companies should divert profits to the pet social causes of the time or gang up to impose liberal social values on CEOs.
Phase 3: It’s Just Better Business—2024 and Beyond
Instead of making more public pronouncements, the proponents have simply moved on to focus on the opportunities, implementation, and impact metrics, much as they did before the Business Roundtable pronouncements. In his celebrated 1970 New York Times magazine cover story, “A Friedman Doctrine: The Social Responsibility of Business Is to Increase Its Profits,” Friedman, while advocating for a focus on profits rather than on purpose, which is the North star of stakeholder capitalism, acknowledged the importance of ethics and the potential benefits of taking care of human capital, going so far as to say it would be greenwashing to brag about it. While emphasizing that the “one and only social responsibility of business is to use its resources and engage in activities designed to increase its profits,” he also added in the same sentence: “...As long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud,” a caveat on ethics arguably widely ignored in shareholder capitalism today.
He goes further. “Of course, in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions. To illustrate, it may well be in the long‐run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employes, it may reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile effects. Or it may be that, given the laws about the deductibility of corporate charitable contributions, the stockholders can contribute more to charities they favor by having the corporation make the gift than by doing it themselves, since they can in that way contribute an amount that would otherwise have been paid as corporate taxes.” In other words, taking care of stakeholders is an opportunity, not a responsibility. Friedman did not prescribe a zero-sum-game race to the bottom to maximize short-term profits.
Now that the flag-waving has gone away, the discussion now focuses on implementation, value creation, and transparency.
- Top Companies on JUST Capital and Fortune Most Admired Company Lists Outperform the S&P 500 by 11% Over 5 Years. These companies were selected by JUST Capital based on how well they address the interests of employees, customers, communities, and the environment and by business executives in the Fortune rankings. The top 20 used in this analysis of stock returns are those US companies that appear on both lists.
- Trust 200 Index Outperforms Its Benchmarks Over 13 Years. This ongoing managed index provides more evidence that organizations do not have to sacrifice their ethics to provide superior returns for shareholders.
- European Union disclosure laws. Without making any reference to the concept of stakeholder capitalism, the European Union embedded its principles in its Corporate Sustainability Reporting Directive. It requires large companies to publish audited reports disclosing the risks and opportunities they create for customers, employees, distribution and supply chain partners, communities, and the environment—literally embedding stakeholder capitalism principles into EU disclosure laws.
- Academic progress. Yale University’s business school has created a program on Stakeholder Innovation and Management. The academic world’s Strategic Management Society has a Stakeholder Strategy Interest Group comprised of professors who conduct research on the subject. Classes on stakeholder capitalism and ESG (environmental, social, governance) are increasingly taught in business schools around the world. The Said School at Oxford in Great Britain has a corporate education program on the economics of mutuality concept largely aligned with stakeholder capitalism principles. A 2022 meta-analysis of academic research on the concept of stakeholder capitalism identified about 90 papers on the subject over the previous 20 years.
- Business continues to invest in DEI. According to a report by Timothy Smith, Interfaith Center on Corporate Responsibility in the Harvard Law School Forum for Corporate Governance, "in this proxy season approximately 98% of the shares voted to maintain current corporate diversity, equity, and inclusion programs. 32 companies (listed in the appendix) including Disney, Costco, Visa, Apple, Deere, Boeing, Goldman Sachs, Levi’s, AMEX, Coca-Cola, Berkshire Hathaway, Bristol Myers, and Gilead Science saw near-unanimous votes, averaging a mere 2% shareholder vote supporting these resolutions, sending a clear message to the boards that shareholders support the business case for non-discrimination in employment and a diverse workforce.” Many of these companies under attack remained publicly committed to their longstanding DEI programs. Corporations like Costco, JPMorganChase, Delta Air Lines, American Airlines, Southwest Airlines, and Apple continue to view diversity as a cornerstone of their workforce strategies, refusing to back down despite mounting pressure from conservatives and the White House.
- Growing research interest. These three studies appeared in the last months alone representing professors in the US, New Zealand, and India.
1. The Evolution of Ethical Leadership in Business to Competitive Necessity. This study in the Journal of Business Management Studies finds that ethical leadership has transitioned from a niche concept to a mainstream expectation. The authors find a correlation between ecological stewardship and profitability, the importance of fair labor practices for employee loyalty and long-term profitability, and the role of transparency and fair compensation in enhancing financial performance. The rise of ESG frameworks and stakeholder capitalism further validates these findings, they write, showing that ethical leadership is now a competitive necessity. Authors are Aman Aherm, Robert J. Trulaske, Sr. College of Business, Columbia, MO; Sharv Jadhav, Mumbai Educational Trust, MET League of Colleges, Maharashtra, India; Shreyas Walekar, Mudra Institute of Communications (MICA), Ahmedabad, India; and Akshit Kashyap, Xavier School of Management (XLRI), Jamshedpur, Jharkhand, India.
2. Deconstructing the Dichotomy: Rethinking the 'Capital' in Woke Capitalism. This study published by the University of Auckland Faculty of Law, explores the perceived conflict between 'woke agendas' and capitalism by examining two approaches to corporate profitability: as the end objective of a director’s duty or as a starting point for broader corporate responsibility. The authors argue for a circular and sustained approach to profitability that balances what they call wokeness and capitalism within directors’ fiduciary obligations. This approach aligns with the entity theory of the corporation, compelling both shareholder and stakeholder advocates to converge in pursuit of a model of woke capitalism. Authors are Peter Underwood and Philip Gavin of the University Auckland, New Zealand.
3. ESG Mid-Year Update: Who Still Cares, and Why You Should. This article in the Harvard Law School Forum for Corporate Governance by Miriam Wrobel and Alanna Fishman, Senior Managing Directors at FTI Consulting, emphasizes that stakeholders who determine a company’s market value, operational license, and competitive position continue to drive ESG (environmental, governance and governance) performance. The authors highlight three strategic implications for businesses: focusing on materiality, communicating with precision, and embedding ESG considerations into core business processes. They argue that integrating ESG into decision-making and operations builds resilience against political and market volatility, creating sustainable competitive advantages.
Is Stakeholder Capitalism a Model Most Americans Can Agree on?
To gauge how the stakeholder capitalism 3.0 framework would resonate with Americans, we submitted it to analysis by ChatGPT 5 and CoPilot.
ChatGPT 5 estimates that 60-70% of Americans would generally agree with this framework based on past surveys, including by Edelman, Pew, and JUST Capital, with higher favorability among Democrats and independents. It predicts support by about 50% of Republicans, with some anticipated resistance to references to natural resources and transparency. ChatGPT says that “If it’s positioned as “common-sense business ethics and long-term prosperity” instead of ‘ESG or ‘woke capitalism,’ bipartisan support is within reach.”
CoPilot generally agrees: “Overall, while the core values in the statement are likely to be appreciated by many Americans, the specific interpretation and emphasis on these values might differ based on political ideology.”
Judge for yourself.
If you agree, you can express your support on this newly launched Change.com petition in support of stakeholder capitalism principles.
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.
