Can businesses afford to have a conscience? The growing number of advocates for stakeholder capitalism and the global context in which we find ourselves seem to indicate that businesses can no longer afford not to.
So, what is stakeholder capitalism? While the primary focus of shareholder capitalism is maximizing profits for owners and investors, stakeholder capitalism considers the needs of everyone affected by the business. This includes owners and investors, but also employees, customers, suppliers, communities, the environment, and society at large. In short, it is a system that considers people and the planet in addition to profit.
|Type of Capitalism||Shareholder Capitalism||Stakeholder Capitalism|
|Key Stakeholder||Company Shareholders (owners, investors)||All stakeholders matter (anyone affected by the business)|
|Key Characteristic||The social responsibility of a business is to increase its profits||Society’s goal is to increase the well-being of people and the planet|
|Goal for Companies||Short-term maximization of profit is the highest good||Focus on long-term value creation and ESG measures.|
Why is Stakeholder Capitalism in the News?
Climate change, the response to COVID-19, rising global inequality… there are many reasons why big businesses are widely criticized for their dogged pursuit of maximum short-term profitability.
Even fans of big business would agree that excessively chasing profit from the global pandemic while countless families struggle to make ends meet can damage a company’s reputation and undermine its license to operate. Indeed, we are seeing companies invest more in things like employee health and well-being, and cybersecurity. For the most part, these efforts have predominantly been made to ensure business continuity; they are not necessarily an indication of any radical or lasting shift.
The growing focus on sustainability, heavily promoted by the UN’s Sustainable Development Goals (SDG) for managing ESG (environmental social governance) has also helped make stakeholder capitalism front-page news.
What are the Stakeholder Capitalism Metrics?
At the 2020 Annual Meeting in Davos, 140 of the world’s largest companies supported efforts “to develop a core set of common metrics and disclosures on non-financial factors for their investors and other stakeholders.”
The recommended 21 core and 34 expanded metrics are not a new standard; they are taken from existing ESG standards and practices (e.g., SASB, GRI and TCFD). The metrics are organized under four pillars that align with the UN SDGs and ESG domains: People, Planet, Prosperity, and Principles of Governance.
How Can Borealis Help You Measure These Metrics?
Defining metrics is often easier than measuring and quantifying your success in meeting them. That’s where a fit-for-purpose tool like Borealis stakeholder engagement software comes in.
Borealis can help you monitor these metrics and collect the data you need to inform your strategies.
For over 15 years, Borealis has supported businesses committed to maintaining productive and trusted relationships with their stakeholders. The software provides organizations with the tools they need to manage stakeholder engagements using a structured and standardized methodology that is transparent, traceable, and keeps them accountable.
Companies use Borealis software to:
Centralize stakeholder data: Easily centralize your data through multiple communications channels. All stakeholder information and engagement data are entered in a secure database that is always available, accurate, and up to date. Borealis ensures businesses always have a complete, real-time view of their stakeholder landscape.
Assess stakeholders: Identify key stakeholders based on your chosen criteria (influence, interest, sentiment, or anything other relevant datapoint) to engage more effectively.
Break down silos: Borealis helps large organizations to share stakeholder information across departments, ensuring that necessarily information is readily available to the right people. This big-picture view vastly improves engagement outcomes.
Create engagement plans: Establish proactive strategies to interact with key stakeholders and measure the results of those engagements.
Quantify efforts: Generate real-time reports to evaluate efforts, progress, and compliance, and to support strategic decision making.
A Brief History of Stakeholder Capitalism
Stakeholder capitalism is not a new concept. In the 1950s and 1960s, it was common for businesses to consider the interests of their “stake” holders. As businesses grew, balancing diverse and often conflicting needs created confusion, and there was no clear way to measure metrics. Companies abandoned this approach in favor of maximizing value for shareholders, a more tangible goal.
Over time, this profit-centered system has led to increasing inequality. One clear example can be seen in the massive salary gaps in the US, where the CEO-to-worker compensation ratio was 20:1 in 1965 but has been closer to 281:1 in recent years. Forward-thinking economists like Klaus Schwab have encouraged big businesses to adopt a more balanced approach, arguing that businesses can only remain healthy for as long as the ecosystem upon which they rely is healthy.
It seems fairly clear that the current system is not in the best of health, but as more and more businesses embrace principles of stakeholder capitalism, we have the hope of a more equitable future.
Businesses now operate in a world that is vastly different from the one we knew just a few years ago. People consider CSR performance when investing, and they use technology and data to inform these investment decisions. Investors will increasingly use stakeholder capitalism metrics to measure a company’s “investment worthiness.” As global CSR and ESG standards continue to evolve, they will provide further clarity.
Borealis supports businesses as they strive to meet the expectations of their stakeholders, while keeping businesses honest and accountable. To find out how Borealis can help improve your existing processes, talk to an expert.