A Global Classroom Dialogue on the Future of Capitalism at Penn State

Penn State graduate students from the US and a diversity of countries learn about stakeholder capitalism in a one-hour class reproduced below for any educator or others wishing to share the concept with students or colleagues.

The Evolution of Stakeholder Capitalism—From the 1940s to Present
The Economics of Stakeholder Capitalism
Student Questions and Answers

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With the topic of stakeholder capitalism taught in so few schools, this recent Penn State lecture in a graduate seminar on applied research and consulting presented by Enterprise Engagemen Alliance Founder Bruce Bolger provides an outline anyone can use to present the topic in business courses or any settings.

Rick Garlick, an Adjunct Professor in this course on applied research and consulting at the Penn State School of Hospitality, opened the class outlining the distinction between shareholder capitalism and the emerging model of stakeholder capitalism, setting the stage for a dialogue about how businesses can create value in a globalized and more socially conscious world.

Note: Because this lecture is intended for general use by anyone, this contains information for which there was not sufficient time to include in the Penn State class.

The Evolution of Stakeholder Capitalism—From the 1940s to Present

Before starting the lecture, Bolger asked the small class of graduate students how many had a positive opinion of capitalism. Not one hand went up.

This provides a historical overview of the development of stakeholder capitalism theory. Throughout this entire period, notably in the 1950s, a select number of companies made these principles part of their fundamental strategies without ever using the term. For instance, corporate pay in the US during the 1960s equaled about 20X the average employee’s pay; that ratio has exploded since then.

1940s. Bolger began the lecture by tracing the intellectual roots of stakeholder capitalism to the post-World War II era. Contrary to what some critics have suggested, stakeholder capitalism has its roots in practical business management with almost nothing to do with what today is known as corporate social responsibility.

He cited W. Edwards Deming, the father of Total Quality Management (TQM), and Peter Drucker, who stated that the purpose of a business is “to create a customer.” Both thinkers in 1940s challenged the extractive model of wealth creation that dominated industrial capitalism, instead proposing systems built on value creation through people.

1950s. Some consider the post World War II period as the period in US history in which we came closest to the implementation of stakeholder capitalism. Companies like Johnson & Johnson, IBM, Procter & Gamble, Eastman Kodak and Sears & Roebuck provide examples. Ironically, those of these examples that stayed true to those values continue to thrive; Kodak and Sears did not.

1960s. According to Bolger, the concept gained early institutional recognition in the 1960s when the Stanford Research Institute conducted research on stakeholder relations in the 1960s.

1970s. In 1973, the newly formed World Economic Forum adopted stakeholder capitalism principles in its founding charter: “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.”

1980s. In 1984, R. Edward Freeman, a professor at the Darden School at the University of Virginia established the formal framework for stakeholder capitalism in the book, Strategic Management: A Stakeholder Approach, still in print. It focused on the often-overlooked interrelationships between businesses, society, stakeholders and value creation—postulating that the most sustainable path to success comes from harmonizing the interests of all stakeholders.

In 1987, the presidential Malcolm Baldrige Quality Award was created to recognize organizations that excel in the principles of total quality management. These align closely with those of stakeholder management: building a culture of continuous improvement focused on customer satisfaction, employee involvement, and process excellence across the entire organization. TQM calls for the implementation of a holistic operating system that integrates all people-related inputs — employees, customers, partners, and communities — into a single performance framework.

1990s. In 1994, Harvard professors James L. Heskett, W. Earl Sasser, and Leonard Schlesinger further studied the interrelationships between customers and employees in their pioneering work on the Service Value Profit Chain. Their work demonstrated the potential alpha created by engaging both customers and employees in common expectations.  This work was further reinforced in 2005 by Gallup and its work on “human sigma,” published in the Harvard Business Review, finding a direct link between high levels of employee and customer engagement with increased sales.

In the marketing world, Don Peppers and Martha Rogers of the Peppers & Rogers Group applied these concepts to their work on one-to-one marketing in their book, The One to One Future: Building Relationships One Customer at a Time. During this period, Seth Godin wrote Permission Marketing, with a similar focus on building one-to-one relationships across the enterprise. Although both books made a splash at the time, there's little evidence they had much long-term impact in the marketing world.

Even during the late 20^th century go-go days of corporate raiders and “greed is good,” Bolger highlighted examples of organizations launched during that period that embedded these principles into their operating systems: Costco, Whole Foods, Wegmans, Delta and Southwest airlines, and Trader Joe’s. These enduring companies demonstrate that focusing on employees, customers, and communities isn’t charity — it’s good business.

2000s. Starting in the early 2000s, the Forum for People Performance Management and Measurement co-founded by Bruce Bolger at the Medill School at Northwestern University published empirical research also finding a link between having highly engaged customers and employees.

In 2004, the term ESG (Environmental, Social, and Governance) emerged from a United Nations report “Who Cares, Wins,” arguing that capitalism can indeed be a force for good when it focuses on value creation. The report was produced by over a dozen of the world’s leading financial institutions.

During this period the B Lab movement focused on making capitalism a force for good was launched, as well as public benefits corporate statutes in business. Today, there are over 10,000 B Lab certified companies. In the US, 37 states now have public benefits corporate statutes.

In 2007, John Mackey, Founder of Whole Foods, launched the not-for-profit Conscious Capitalism organization to promote similar principles through the development of local chapters.

In 2009, Mars Inc. founded Economics of Mutuality, a not-for-profit to promote the principle of the privately held company’s business model: a management innovation and operating model that equips companies to create and measure mutual value—financial, social, human, and natural capital—by aligning business performance with the well-being of all stakeholders.

This was the same year that the Enterprise Engagement Alliance was founded to focus specifically on demonstrating the impact of stakeholder capitalism practices on share prices and business performance and to provide organizations with a roadmap for effective implementation at the front-lines based on the same principles advocated by Deming, Drucker, Freeman, and others.

2010s. During the early 2010s, Professors Michael E. Porter and Mark R. Kramer at Harvard University Business School created the  Shared Value Initiative--- the idea that companies can enhance their competitiveness while simultaneously advancing the economic and social conditions of the communities in which they operate.

In 2010, the Strategic Management Society’s Stakeholder Strategy Interest Group (SSIG) was formed to share research on the subject in the academic community. Today, it has over 3,000 academic members worldwide.

In 2017, the Council for Inclusive Capitalism was founded by the Vatican with the support of  Lady Lynn Forester de Rothschild of the Rothschild financial institution and other leading companies. It exists to encourage business to “pursue profits in ways that lead to a more inclusive and sustainable economy — combining both a moral imperative and a market one.”

2020s. This period is highlighted by the emergence of stakeholder capitalism into the public eye and a subsequent backlash. Almost no one had ever heard of the concept of stakeholder capitalism until August 2019 when the Business Roundtable published its updated charter of the organization signed by 181 CEOs. (It remains little known outside of high level business and related media circles.) It committed them to leading their companies for the benefit of all stakeholders — customers, employees, suppliers, communities and shareholders. Issued during a period of heightened social and political division, it was almost immediately attacked by the right as statism--big companies trying to impose their values on society--hypocrisy, diversion of profits from shareholders to pet social issues, and what opponents called an impossible to juggle process of trying to balance the interests of different stakeholders. On the left, opposition was based on both the hypocrisy argument and on a general skepticism that capitalism is capable of reform.

Media coverage.  The Business Roundtable pronouncement produced some media coverage in business sectors that dropped off along with the general anti-ESG and DEI climate that came along with the backlash. Interestingly, almost none of the articles for or against the concept references a specific definition, when the definition used can render the concept impossible to implement or highly practical. Despite the ample discussion about the topic, no dictionary has yet included a definition. As a result, the Enterprise Engagemet Alliance, with input from Alex Edmans of the London Business School and Martin Whittaker, CEO of JUST Capital published with the help of Edmans in Forbes: "enhancing returns for investors only by creating value for customers, employees, distribution and supply chain partners, communities and the environment." The topic continues to get business coverage around the world without a formal definition and has generally not been the recent direct target of anti-woke activists. Here issome select media coverage during the period.

Barron’s – “The Shift to Stakeholder Capitalism Is Happening” (Dec. 2021)
Stanford Social Innovation Review – “How to Make Stakeholder Capitalism Work” (Summer 2021))
TIME – “Where Stakeholder Capitalism Goes Next” (June 2021)
Wall Street Journal – “Stakeholder Capitalism Is Slowly Advancing” (Aug. 2021)
Axios – “How CEO letters reflect the stakeholder capitalism shift” (Jan. 2022)
Fortune – “Shareholders are no longer the only ones with a say” (May 2022)
Harvard Business Review – “Managing Shareholders in the Age of Stakeholder Capitalism” (Aug. 2022)
Fortune – “Shareholders are no longer the only ones with a say” (May 2022)
MIT Sloan Management Review – “The New Math of Multistakeholderism” (Oct. 2022)
Harvard Business Review – “What Does ‘Stakeholder Capitalism’ Mean to You?” (Sept. 2023)
Bloomberg – “Stakeholder Capitalism in Private Equity” (June 2023)
Fast Company – “How ‘business for good’ went bad—and what comes next” (2025)

Despite the opposition, Bolger says the general negative attention has died down, with those companies committed to the principles forging ahead, as exemplified in the EEA’s growing list of Golden Rule companies.

In other developments during this period:

Education. In 2022, the Yale School of Management established a program on stakeholder innovation and management. In 2025 a group of professors formed what they hope to be a global alliance on education in conscious capitalism principles.

During this period, higher education institutions began to run courses on stakeholder capitalism and management practices, including:

Stakeholder Capitalism” — Harvard Law School (Fall 2024). Taught by Prof. Lucian A. Bebchuk, it covers the issues related to stakeholder capitalism by a prominent opponent.
Topics in Policy Analysis (Half-Term): Toward Stakeholder Capitalism — Princeton University (Spring 2025). Taught by Margot Brandenburg and Andrew Kassoy (recently deceased). Coverage of the recent history, debates, and policy dimensions of stakeholder capitalism.
Strategic Stakeholder Management — Cornell University (eCornell)
Cornell course authored by Cornell faculty member Christopher Marquis covers the evolution of stakeholder management toward a greater focus on sustainability.
Stakeholder Management and Business Ethics (BU52034). — University of Dundee (UK)
Official module page with the exact title; covers stakeholder management concepts, ethics, reputation, governance, and related topics.
Stakeholder Management—Richmond American University, London (UK)
An overview of stakeholder management principles.

Current status. Despite some continued rumblings of opposition, Bolger says the general negative attention has died down. Those companies committed to the principles forging ahead, as exemplified in the EEA’s growing list of Golden Rule companies.

The Economics of Stakeholder Capitalism

In 2012, to better understand the potential impact of enterprise engagement on share prices, the Enterprise Engagement Alliance (engaged the analytics firm McBassi Inc. to create the Engaged Company Stock Index, a mock ETF (exchange-traded fund) consisting of companies with high levels of customer, employee, and community engagement as tracked by 13 different indices on customer, employee and community engagement. Over the six years of the study, the ETF outperformed the S&P 500 benchmark by 37.8%.

In 2014, Alex Edmans, Professor of Finance at the London Business School, conducted a study of “Great Places to Work” companies. He found that those organizations outperformed the S&P 500 by an average of 2.3% annually over the previous 27 years.

This work apparently inspired further efforts. In 2017, Goldman Sachs launched the JUST Large Cap Fund with JUST Capital, in 2013. JUST Capital was founded by hedge fund entrepreneur Paul Tudor Jones II, Deepak Chopra, Arianna Huffington, and others as a not-for-profit platform to help make capitalism a force for good by measuring and ranking large companies based on how well they serve the priorities of the American public — i.e., workers, communities, the environment, and customers. Using similar metrics based on what Americans want most from business—good jobs, quality products, and responsible environmental practices, the JUST large cap fund has also outperformed the S&P 500 since inception.

In 2017, Dan Ariely, a professor of behavioral economics at the Fuqua Business School at the University of North Carolina, launched Irrational Capital, an investment‐research firm founded in 2017. He identified what he felt to be a measurable set of human capital factors linked to financial performance. Ariely’s “Human Capital Factor” formula, tested through the HAPI Fund, has outperformed the S&P 500 for four consecutive years. Irrational Capital is an investment‐research firm founded in 2017. The company has created an assessment tool to assess their human capital risks and opportunities for future equity value creation.

Note that a focus on sustainability in investments is no guarantee for success on the stock market. Morgan Stanley is liquidating the Calvert US Equity trust, founded in 2023, focused on sustainable companies, apparently for under performance against its Russell 1000 index benchmark.

Student Questions About Stakeholder Capitalism

Here are the questions from students and answers from Bolger.

Since stakeholder capitalism appears to be aimed at long-term investors, what is the answer to investors interested only in short-term results.

Bolger says that companies that act legally and within commonly accepted ethics, as prescribed by economist Milton Friedman, have every right to pursue short-term strategies. He says that stakeholder capitalists welcome competition from short-term thinkers, because many of those eventually lag in the longer term, at least in competitive markets. Stakeholder capitalists look for investors committed to their purpose, goals, objectives, and values rather than those looking for short-term quick hits.

How is it possible to balance the interests of so many stakeholders with different interests, especially when there are difficult decisions to be made.

From Bolger’s point of view, that’s what shareholder capitalists do—balance the needs of shareholders against what they have to do to meet the needs of customers, employees, and other stakeholders. When public companies buy back shares, for instance, they have to balance that against the need for other investments—such as in investments in employees and customers—that might take longer to produce results but could avoid the risk of strikes, low productivity, or customer defections.

Stakeholder capitalists seek to harmonize the interests of all stakeholders toward a clear purpose, goals, objectives, and values, so that when the inevitable trade-offs occur, there is a transparent foundation against which to determine the best approach. Having a clear purpose and values does not eliminate pain in business but makes painful decisions easier to understand and absorb.

Having a clear purpose also helps break down the silos that inevitably develop in organizations that can undermine collective action to pursue internal interests, he says.

What about CEOs taking political or social stances?

Leo E. Strine Jr., former Delaware Supreme Court justice, and an early advocate for the public benefits corporation statutes, argues that companies should stay out of politics unless issues are directly related to its purpose, goals, objectives, and values understood by all shareholders and stakeholders. When companies like Patagonia, Ben & Jerry’s and Nike have taken stances, their actions generally have met with little pushback. On the other hand, when companies stray outside of their known lanes, it can make large segments of their stakeholders feel unnecessarily uncomfortable, as Anheuser Busch learned with its Bud Light commercial featuring a transgender influencer.

How to identify organizations that live by stakeholder capitalism standards

Today, AI makes it much easier to identify public, or large international, national, and regional leaders focused on enhancing returns for investors only by creating value for customers, employees, distribution and supply chain partners and communities. Because of the availability of so much information about companies on the Internet, the following AI query can in many cases provide a good place to start either to rate a specific company or find companies whose practices (not public statements) reflect these practices:

“Find and score companies (or a specific company) on their demonstrated practices to enhance returns for investors only by creating value for customers, employees, distribution and supply chain partners, communities, and the environment.

More specifically, score them on a one-to-five scale, with five being best on customer satisfaction, employee engagement, distribution and supply chain treatment, support for their communities and the environment.” The results likely will surprise you.

In many cases, an organization will be too small to provide sufficient information for AI analysis but for large companies information is often plentiful. Notwithstanding, the same framework provides the basis for good questions to ask related to doing business with the organization as an investor, customer, employee, distribution or supply chain partner or as a part of your commercial community.

Where to go for more information.

Stakeholder Management Forum and Library for Leaders, Academics, and Investors
A complete discussion form for leaders, academics, and investors in the form of live Zoom shows streamed on the EEA's YouTube channel along with a library of resources, organizations, academic and other research on all aspects of stakeholder management, enterprise engagement, and total rewards implementation.

Stakeholder Capitalism: A Primer
An even more detailed presentation on the history of stakeholder capitalism than that presented above.

Enterprise Engagement Alliance Services

Celebrating our 15^th 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

2. Learning: Purpose Leadership and Stakeholder

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.