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After 40 years in the shadow of Milton Friedman’s monetarism, stakeholder capitalism has returned with renewed purpose. The social and economic climate is ripe for a shift away from the investor-centric model, with shareholder primacy replaced by a broader perspective on how shared value can be generated for all. As businesses attempt to navigate this new stakeholder-centric reality, we outline our views on what this means and the practical steps required to make stakeholder capitalism a model that delivers benefits for everyone.
The business textbook definition of a corporate stakeholder is any individual or organisation with a vested interest in the performance of a company. These stakeholders and their various roles fall into very distinct categories, making their perspectives and priorities easy to identify. A straightforward, top-down model that allows businesses to take appropriate action to keep all types of stakeholders on side.
Claims that stakeholder capitalism is flawed and even dangerous reflect a lack of understanding of how the system works. Correctly implemented as a route to value creation for all stakeholders, it is a sustainable model for building both long-term business resilience and financial success.
Having adopted a stakeholder capitalism model as the path to long-term business success, companies are faced with the challenge of how to measure their progress, both against stakeholder priorities and attributable outcomes. Frameworks are being built, but a global, cross-industry solution has yet to be established.
The shift from a shareholder to a stakeholder-centric model of capitalism seems inevitable. But how will the 21st century version differ from previous iterations, how does the business world transition from the theoretical to the practical, and is it even possible to prioritise all stakeholder groups?
In an era when stakeholders wield more power over business outcomes than ever before, every organisation needs to understand the impacts different stakeholder groups can have on its operations.
In a world where the importance, influence and impact of myriad stakeholder groups is becoming ever greater, businesses need to be able to manage their relationships with those stakeholders. Having an effective stakeholder engagement plan creates competitive advantage, cements customer loyalty, and renews the social contract.
The rising influence of multiple stakeholders requires forward-looking businesses to not only employ a stakeholder intelligence solution to track stakeholder perceptions, but also develop a stakeholder engagement plan for acting on that intelligence.
With stakeholder interests, expectations and dissatisfactions growing ever more prominent, stakeholder analysis should be a fundamental part of any business’ strategic toolkit and executive reporting framework. But for the results to be useful, it needs to move from a once-a-year internal review to an always-on, agile process.
The rise of stakeholder over shareholder capitalism has seen a shift in prioritisation within businesses, but it isn’t a case of shareholders versus stakeholders. There is no either/or when it comes to who should benefit from business. Rather, stakeholder capitalism sees a broadening perspective on how shared value can be achieved for all stakeholders.
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?
