19th May 2021 0 Comments Purpose

The Basics: Stakeholder Capitalism

People at a zebra crossing, representing stakeholder capitalism

What is it?
Stakeholder capitalism, as opposed to shareholder capitalism, is a system in which corporations strive to create long-term value by taking into account the interests of all their stakeholders, rather than just shareholders.
Stakeholders include: customers, suppliers, employees, shareholders and local communities.

How has it evolved?
In the 1950s and 1960s, it was common for a CEO to consider everyone who was at “stake” of the success of the company. Since the financial crash in 2008, the idea has made a comeback.

In August 2019, the Business Roundtable released a new “Statement on the Purpose of a Corporation”, which marked a drastic move away from their previous stance on shareholder capitalism – a position they’ve held since 1997. The group of 181 multinational CEOs publicly stated that all its members share a fundamental commitment to all their stakeholders.

Now, spurred by the climate crisis, pandemic and other societal challenges, stakeholder capitalism is gaining even more momentum.

What are its core beliefs?
Supporters of stakeholder capitalism believe that serving the interests of all stakeholders, as opposed to only shareholders, is indispensable to a business’ long-term success. Indeed, they make the case that stakeholder capitalism is not just a moral decision, but a sensible business move.

The stakeholder model recognises our system as global, centering around the planet. Economies, societies, and the environment are inextricably linked; even more so now than 50 years ago.

The well-being of individuals in one society affects that of those in another; all global citizens should seek to optimise the well-being of everyone.

Who supports it?
Advocates of stakeholder capitalism include the Business Roundtable and Klaus Schwab, founder of the World Economic Forum.

In 2018, Larry Fink, the founder and CEO of BlackRock, stated that: “Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate”.

Another example of supporters of stakeholder capitalism are B Corporations. They are legally obligated to assess the impact of their decisions on their employees, customers, suppliers, community, and the environment.

“Business leaders now have an incredible opportunity. By giving stakeholder capitalism concrete meaning, they can move beyond their legal obligations and uphold their duty to society.” —Klaus Schwab, Founder, World Economic Forum