Monday 24 February 2020 11:23 am

Everything old is new again: Stakeholder capitalism is back

Russ Lidstone, Chief Executive Officer of The Creative Engagement Group, argues that businesses and leaders must embrace “stakeholder capitalism”

Mark it down: 2020 could be the start of more than just the new decade. For the first time since 1973, the World Economic Forum has updated its Davos Manifesto to re-emphasise businesses’ commitment to the environment, human rights and sustainability.

Davos also yielded some rather startling quotes this year. “Capitalism as we have known it is dead,” announced US billionaire Marc Benioff. “This obsession we have with maximising profits for shareholders has led to incredible inequality and a planetary emergency.” Benioff was far from the only one to strike an ambivalent tone. “Maybe somewhere we derailed a little bit, where we thought making money is the real goal of the economy, where the real goal is to live happily here all together,” added DSM CEO Feike Sijbesma at the same ‘Stakeholder Capitalism: What Is Required from Corporate Leadership?’ session.

Read more: We can make this the decade of purpose driven capitalism

What is perhaps surprising about all this, is that these prophetic warnings and notes of optimism were received with hardly anyone batting an eyelid.

Yes, as far as the financial markets are concerned, there’s been quite the paradigm shift in the past couple of years, since the morning in January 2018 when Larry Fink of the world’s biggest investment firm BlackRock sent a letter to the world’s top CEOs stating: “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” Quite the reverse ferret from a CEO who just four years previously had claimed activism harmed job creation.

In what has been seen as one of the key moments in the rise of ‘conscious capitalism’, Fink had grasped that businesses that failed to engage with the community would “ultimately lose the license to operate from key stakeholders”.

The term ‘conscious capitalism’ was first popularised by Whole Foods CEO John Mackey, whose book of the same name asks leaders to think about how to create more value for their stakeholders. He also argues that great amounts of value could be delivered to stakeholders without sacrificing profits. 

Which brings us to a concept that goes arm in arm with conscious capitalism; Stakeholder Capitalism. This isn’t a new-fangled concept: a popular theory in the 1960s, it was ideologically squished in subsequent decades by the philosophies of free-market economist Milton Friedman, who argued the social responsibility of a business was to maximise profits. Yet driven by the climate crisis, rising inequality, and a need by Millennials and Generation Z for more transparency, the tide is turning against Friedmanism. There are now many who agree instead with my former boss David Jones’s premise in his 2012 book titled “Who cares wins’.

In August 2019, the Business Roundtable, a lobbying group of leading US CEOs, announced they were no longer putting shareholders before everyone else, and instead pledged a responsibility to their customers, workers and communities. Top CEOs such as Coca-Cola’s James Quincey, and Unilever’s Polman and Jope have embraced this – the latter citing the company’s focus on sustainability as driving its recent success. 

The requirement for companies to act is no longer simply due to external pressures or stakeholders. The requirement to act is coming from stakeholders closer to home – employees. Research carried out by our consultants at Forty1 shows that leadership & managers embodying behaviours, such as empathy, kindness, vulnerability and humanity can be transformative to a business and vastly improve retention. According to Edelman, 92% of employees expect their CEO to have a view on social issues, while 74% expect them to take action on sustainability and the environment, instead of waiting for the government to do it. 

Following the disappointment of the ‘greenwashing’ noughties, there is an increasing stakeholder focus on behaviour – or ‘actions not words’.  As social issues rise up the agenda, how the CEO engages their employees to help live up to the promises they make is crucial to employee engagement and fundamental to a more sustainable future. ‘Giving a shit’ is increasingly a competitive advantage.

Undeniably, this is clearly an unparalleled time for the planet, for business and for both political and business leaders. This ideological overhaul won’t happen overnight and wrestling with the complexities of sustainability is an unparalleled challenge for all of us. Whilst none of us is perfect or has the definitive answer – the future of business, not to mention the planet, clearly depends on us collectively finding one.

As World Economic founder Professor Klaus Schwab recently said, “Business leaders now have an incredible opportunity… They can bring the world closer to achieving shared goals, such as those outlined in the Paris climate agreement and the United Nations Sustainable Development Agenda. If they really want to leave their mark on the world, there is no alternative.”

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.