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.
What is stakeholder capitalism
Stakeholder capitalism is not a new concept. Klaus Schwab first wrote about it in 1971, and the concept is even older than that:
In the 1950s and 1960s, it was quite natural for a company and its CEO to consider not just shareholders, but everyone who as a “stake” in the success of a firm. That is the core of stakeholder capitalism: it is a form of capitalism in which companies do not only optimize short-term profits for shareholders, but seek long term value creation, by taking into account the needs of all their stakeholders, and society at large.
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, and the environment. In short, it is a system that considers people and the planet in addition to profit.
| Shareholder Capitalism | Stakeholder Capitalism | |
|---|---|---|
| Key Stakeholder | Company Shareholders (owners, investors) | All stakeholders matter (anyone affected by the business) |
| Key Characteristic | The social responsibility of 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 relentless pursuit of short-term profit.
Most fans of big business would agree that this excessive focus on profitability while countless families struggle to make ends meet – particularly in the midst of a global pandemic – can damage a company’s reputation and undermine its license to operate.
While we do see companies investing more in things like employee health and well-being as well as cybersecurity, these efforts have primarily been made to ensure business continuity; they are not necessarily an indication of any lasting shift. Nevertheless, the concept continues to gain momentum:
- In 2019, the Business Roundtable redefined their Statement on the Purpose of a Corporation to promote ‘an economy that serves all Americans.’ Alex Gorsky, Chairman of the Board and Chief Executive Officer of Johnson & Johnson and Chair of the Business Roundtable Corporate Governance Committee said, “This new statement better reflects the way corporations can and should operate today. It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”
- In 2020, the annual meeting of the World Economic Forum in Davos opened with the theme “Stakeholders for a Cohesive and Sustainable World.” Global leaders considered how common metrics for stakeholder capitalism would ensure consistent reporting, and potential disclosures could create long-term value through greater transparency and accountability.
- In January 2022, BlackRock (the world’s largest investment firm) published CEO Larry Fink’s annual letter to CEOs. In it, he writes, “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.” He goes on to say, “Stakeholder capitalism is not about politics. It is not a social or ideological agenda. It is not “woke.” It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper.”
The growing focus on sustainability, as promoted by the UN’s Sustainable Development Goals (SDG) for managing ESG (environmental, social, and corporate governance), has also helped make stakeholder capitalism front-page news.
What are the Stakeholder Capitalism Metrics?
At the World Economic Forum’s Annual Meeting in 2020, 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 resulting Stakeholder Capitalism Metrics initiative seeks to standardize and align existing ESG frameworks for better comparability and consistency. The recommended 21 core and 34 expanded metrics are organized under four pillars that align with the UN SDGs and ESG domains: People, Planet, Prosperity, and Principles of Governance.
Reporting and disclosure are becoming key tools in addressing the climate crisis, as well as other sustainability issues. ESG is a challenge for all industries, and trying to figure out how to adjust your operations and business functions is no easy task. Research has shown that robust ESG policies make a business more resilient to future challenges, so it’s certainly worth your while to reassess what is material to your organization. As these risks continue to grow, developing solid, data-driven ESG policies can help your organization make better decisions and build stronger stakeholder relationships.
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.
With 20 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 plan: Establish proactive strategies to interact with key stakeholders and measure the results of those engagements.
Simplify everyday engagement activities: Access your data and reports on the road or in the field and quickly track outcomes on the go with the Borealis Outlook Add-On and Mobile App.
Quantify efforts: Generate real-time reports to evaluate efforts, progress, and compliance, and to support strategic decision making.
Summary
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 organizations honest and accountable. If you would like to find out how Borealis can help improve your existing processes, talk to an expert today!
Updated January 27th, 2022.
