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Stakeholder capitalism: what, why and how?

Stakeholder capitalism and ethics in the modern era

When it comes to business, the fundamental belief of every successful organisation has been to focus on innovation and reinvention. The age-old adage ‘new is always better’ runs through the veins of executives in every sector.

There is enough evidence to prove this theory works. Countless companies have exponential profitability using this strategy. Netflix is a prime example of successful, continual, metamorphosis. They have grown from strength to strength using the Milton Friedman approach. What was once a DVD delivery service evolved into a streaming service and then began creating its own content – much to the chagrin of movie studios across the globe.

But no matter what kind of service Netflix provides, the ultimate focus of the company is to make shareholders more profit. Capitalism at its finest. But is there a better approach?

What is stakeholder capitalism?

Stakeholder capitalism, a management strategy that makes stakeholder interests its primary focus, has made a surprising return to the corporate world.

Once popular in the 50s and 60s, the social capital system sees the customers, suppliers, shareholders, and local communities as the key stakeholders. The motivation behind the company’s actions and activities is to provide long-term value for stakeholders.

This model has had its fair share of success in many European markets and has gained momentum in very important circles. At a panel discussion at Davos 2020, Kevin Sneader – Global Marketing Manager at McKinsey & Company - boldly stated that the responsibilities of a business are to give back to the community and enrich everyone. “And I think we lost our way a little bit in forgetting that,” he said.  

Salesforce – a longtime proponent of the stakeholder capitalism ideology – has been voted one of the Great Places to Work for three years in a row while projecting $28 billion in revenue by fiscal 2023

Chairman and co-CEO of Salesforce, Marc Benioff, shared his insights on their successful business model. “Capitalism, as we know it, is dead. The new capitalism is that businesses are here to serve their shareholders, but also their stakeholders — employees, customers, public schools, homeless and the planet."

Why the change to stakeholder capitalism?

Climate change has been a real game-changer for how companies operate. Humanity can feel the clock counting down to an environmental disaster. The founder and executive chairman of the World Economic Forum, Klaus Scwab, is another long-time advocate of stakeholder capitalism.

"People are revolting against the economic ‘elites’ they believe have betrayed them, and our efforts to keep global warming limited to 1.5°C are falling dangerously short."

These sobering words are perhaps just the jumpstart executives need to begin aligning company policy with what benefits the most people.

How to adopt stakeholder capitalism:

While companies may need some time to untangle from the traditional capitalism web, these are some suggestions on moving towards a shared value, social capital approach:

  • Paying fair wages
  • Reducing the CEO-worker pay ratio
  • Ensuring safety in the workplace
  • Giving workers time off to support causes they’re passionate about
  • Avoiding tax loopholes
  • Providing good customer service – customer centricity is key
  • Engaging in honest marketing practices
  • Investing in local communities
  • Preventing environmental damage
  • Prioritising ‘doing good’ as a business imperative and ongoing KPI

Conclusion:

For a more comprehensive study in an advanced setting, sign-up for the Senior Management Development Program which develops a strategic leadership mindset. Invest today in becoming a transformational leader who prioritises shared value practices – to the benefit of shareholders and all other, equally important, stakeholders.

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