Embracing Stakeholder Capitalism

The science is clear - climate change is real, and humans are causing it. Our planet has been steadily warming since the Industrial Revolution, when mechanized factory production, chemical manufacturing, and the burning of fossil fuels led to unbridled consumerism and economic growth. The businesses at the heart of these innovations were driven by shareholder capitalism, which focuses on financial gains and ignores any consequences that don’t have a direct impact on short-term profitability. But this mentality has resulted in a mountain of social and environmental challenges that threaten both the global economy and general well-being. Clearly, businesses don’t operate in some bubble separate from global systems. It’s time to embrace the reality that how we conduct business matters, and to shift to a model that prioritizes the needs of all stakeholders.

What is Stakeholder Capitalism?

Stakeholder capitalism is a system that serves the interests of all stakeholders, not just investors, but any individual or group that has a stake in the outcomes generated by an organization’s decisions and actions. This model attempts to address the issues resulting from traditional shareholder capitalism by acknowledging the interconnectedness of sentient beings and the biosphere. Stakeholder capitalism is about creating long-term value in every way - not just profits and economic growth, but also the well-being of people, animals, and the ecological systems in which they live.

“In today’s globally interconnected world, a company must create value for and be valued by its full range of stakeholders in order to deliver long-term value for its shareholders.” - Larry Fink's 2022 letter to CEOs

Making the Transition

Transitioning from shareholder to stakeholder capitalism isn’t as complicated as you might think. The first step is shifting your mentality and making a commitment to serve the interests of all stakeholders. Then you need to determine who your stakeholders are and how your company’s actions affect them. With this knowledge you can begin to establish guidelines for making decisions and implement them throughout your business.

State Your Purpose

Before you can identify who your stakeholders are, you need to know why your business exists. Every business must make money, but that can’t be your only guiding principle. Well-drafted purpose, mission, and vision statements help to guide your business decisions and keep you on a clear path. If you don’t have a clear “why”, it’s never too late to identify it and put it in writing. Bring together a group of people from throughout your organization to help discover why your company exists, how it serves society, why it matters, and how it works towards achieving its vision. Once you’ve identified your reason for being, it’s much easier to identify who your key stakeholders are.

Identify Your Key Stakeholders

Your key stakeholders are those most connected to your business - the individuals and groups directly impacted by your actions. These most commonly include investors, employees, customers, suppliers, and community members. By identifying your key stakeholders and understanding their needs, concerns and priorities, you’ll be better equipped to make decisions that generate long-term value. Odds are you already have some idea of what matters to each group, but if you’re unsure, consider conducting surveys. By gathering this information you’ll be able to identify areas where your business has an opportunity to improve and build better relationships with stakeholders.

Treat People Well

Companies do not exist without people. Your employees, customers and community members all contribute to the success of your company. Happy employees are your greatest ambassadors, but keep in mind that the relationship between company leadership and employees is a two-way street. For them to take care of the business, the business must take care of them. Your employees are working hard to keep everything running smoothly, so make sure their needs are met and that you provide a safe, welcoming, and supportive environment. 

Good relationships with customers and communities are also key to long-term success. Trust is the cornerstone of any healthy relationship, and if you want people to trust your business, you have to earn it. Be honest about the products and services you offer and how you go about providing them. You can build trust by prioritizing quality and impact, and being active members of the community. Assess the human and environmental impacts of your offerings to ensure they do not cause harm. If they do, develop a plan to do better.

Measure Your Impact

Most businesses set quantifiable goals for growth and profitability, but you can take it a step further by incorporating environmental and social goals as well.  Setting clear annual targets will make it possible to improve outcomes and provide information you can share with your stakeholders. If you’re not sure how to set and measure social and environmental goals, consider bringing in a consultant or signing up for a course to learn how to do it yourself. Alternatively, you could hire an experienced corporate social responsibility professional to join your team. Measuring your impact helps you prioritize your sustainability efforts, many of which will improve your bottom line.

Adapt 

Adaptability is essential to the long-term success of any organization. Circumstances, culture, and public opinion - the environment in which business is conducted - is constantly changing, so you need to adapt to stay responsible and relevant. If your company is stuck in old patterns, head down and laser-focused on your existing products, services, and operations, you might soon look up and find yourself in a world you don’t recognize. And then what? You’re forced to play catch-up or risk spiraling into obsolescence. Instead, encourage a culture of creativity and innovation throughout your organization. Your purpose and impact goals can help to inspire creativity, as can the latest scientific discoveries, technologies, and social movements. Being willing to learn, try new things, and grow are essential traits of a sustainable business.

Take a Stand

It’s become increasingly difficult for companies to separate themselves from social and political movements. Practicing stakeholder capitalism means taking a stand on issues that affect your stakeholders, especially when your company is in a position to make change happen. In a free market system like the United States, where businesses hold immense amounts of power and influence, they also have a greater responsibility to their stakeholders. After the murder of George Floyd in 2020, consumers, employees, and community activists made it clear they expected companies to act, and to commit to creating a more diverse, equitable, inclusive, and just society.

Concerned citizens have been demanding change of all kinds for decades. From terrible work conditions and poverty wages to harmful chemicals and environmental destruction, we continue to face many challenges. But most companies - those practicing shareholder capitalism - have been passive when it comes to these issues. They react to problems when they have to and do whatever it takes to maintain an acceptable public image and adapt to changing laws without compromising profits. Faced with this callous indifference, people are actively seeking ways to leverage their power to force companies to do better. It’s time to join these efforts and enact meaningful change. Come out against social injustices, reduce your carbon footprint, and develop and share plans to improve outcomes for everyone. By taking a stand on social and environmental issues that affect your stakeholders, you can show them that you care about their well-being and build trust.

People, Profit, Planet

Stakeholder capitalism operates at the intersection of people, profit, and planet - the triple bottom line. Doing harm to the people and planet that allow your business to exist is a zero-sum game - a race to the bottom. We’re at a turning point in society where we can no longer ignore the effects of climate change or the social injustices affecting so many people across the globe. Companies committed to all their stakeholders will create better outcomes for future generations. After all, without people or a healthy planet there will be no profits in the end.