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As a business ideal, stakeholder capitalism is a popular concept, garnering support from large corporations and global economic foundations. But despite recognition of its undeniable merits, widespread implementation has yet to take hold, and confusion reigns on how best to make it work it practice. The vital first step in the journey from theory to practice is to ask – do we know what our stakeholders think and feel about us?
A new era of stakeholder capitalism is dawning, but for a lot of organisations, it remains in the realm of theory, its concepts frustratingly intangible and impracticable. While the concept of long-term shared value creation for all, achieved by balancing the needs of all stakeholders, is being accepted as desirable, it is not necessarily seen as doable.
Stakeholder capitalism may be being hailed as the next big thing, but it’s certainly not new. Its history, rooted in the concept of putting profits back into corporations and investing in employee wellbeing, stretches back to the end of World War II. It was only in the 1970s that Milton Friedman made the ‘retain and reinvest’ policy unpopular, espousing profits over philanthropy. The inevitable result was the rise of shareholder primacy, by which investors became the dominant shareholders.
Now, although the pendulum is swinging back in favour of the stakeholder-centric model, a very real danger exists that it will fail to become the economic norm. Stakeholder capitalism might remain a utopic vision, discussed within the talking shop of the Business Roundtable or the ivory tower of the World Economic Forum (WEF) via its Davos manifesto. This worthy treatise outlines the contrast between shareholder capitalism – maximisation of corporate profits for the benefit of shareholders; state capitalism – government directed economic policy, favoured in many emerging markets; and stakeholder capitalism, which, in the words of WEF founder Klaus Schwab, “positions private corporations as trustees of society, and is clearly the best response to today’s social and environmental challenges”.
The evidence suggests he is right, but despite these stirring words, stakeholder capitalism remains for many corporations, business leaders and boards an abstract concept, which they are struggling to actualise and find everyday applications for. In the midst of this confusion, how can they begin to take practical steps towards working in the interests of all their stakeholders?
In the first instance, organisations want to see that this form of capitalism will give them a competitive advantage, in the short term if not immediately, as well as appeasing their stakeholders, and, more broadly, making the world a better place for future generations. Understanding their position in relation to their different stakeholder groups will give them a view of the impact a stakeholder-centric approach to corporate governance could have on their business.
Prior to instigating the wholesale transition to an implementable stakeholder-centric solution, and indeed even if they haven’t made up their minds that this is the model want to follow,
every company, board and executive should be asking whether they have the necessary means in place, along with access to the required intelligence, to understand what their different stakeholders think and feel about them.
By auditing and assessing any stakeholder intelligence that they currently have available within the organisation, they can dip their toes in the water of stakeholder capitalism without formally committing to it.
This preliminary process doesn’t need to be complex. A straightforward review of current intelligence around stakeholders – be it primary research, secondary data, AGM minutes or social media posts – is a start. There exists a whole gamut of different Stakeholder intelligence solutions spanning basic media analysis to comprehensive algorithmic data analytics assessing corporate reputation.
The opinions held by customers can be gleaned from online reviews, for example; the feelings of the local community through local media; employees’ satisfaction from survey results; and suppliers’ positivity through interactions with the procurement department. This type of data is a basic form of stakeholder intelligence that every organisation and any chief executive should be able to gain access to with very little time or effort.
This initial ‘stakeholder situation report’, even if not orchestrated as part of a total transition to a stakeholder-centric way of operating, should provide meaningful, actionable intelligence on how different stakeholders relate to the organisation.
The questions that then arise are, are they satisfied with the picture that it paints of their stakeholder relationships; and does that picture reflect the business’s aims for its corporate governance, reputation and long-term sustainability?
If, having performed this top line assessment, the business’s leadership believes that where it stands with its stakeholders is not compatible with where it needs or wants to be, there are further steps that can be taken towards an economy that works for all.
Depending on the organisation, the sector it operates in, and its management structure, implementing stakeholder capitalism could either be fairly straightforward, or require the fundamental restructuring of its corporate culture. Reams could, and will, be written about the best way to make stakeholder capitalism work. Every organisation, however, can build on the following foundational processes: