Education & Skills

Stakeholder Capitalism: the power shift is changing – will you lead or will you follow?

stakeholder-capitalism

Stakeholder capitalism is a management theory that is prevailing its way back onto the corporate agenda. It’s the strategy concept that focuses on companies’ stakeholder models which recognise universal priorities, arguing that alignment of collective needs (not just the shareholders) is the only way to sustain longevity in successful business operations.

In business the default has been to rely on senior governing bodies and shareholders to drive the priority memorandum; this way of working is swiftly not only becoming dated, but damaging.

Stakeholder capitalism seeks to emphasise the benefit of recognising the priorities of all those who have a ‘stake’ in driving the success of companies. It is a stakeholder model that acknowledges the customers, the employees, the suppliers etc. in addition to those in the driving seat, the shareholders.

This stakeholder model concept is about recognising the pivotal importance of those both backstage and frontstage – the global audience and the global auditorium.

Unsure of your stance – ask yourself this: are you striving for long term value creation for all those involved over short-term profit and wins?

Key takeaways:

  • We’re already seeing clear examples of representations of stakeholder capitalism in the existing daily operations of businesses worldwide
  • Profit has an interdependent reliance, and to achieve not only heightened but longevity in success, ‘backstage’ stakeholder demands can be utilised as an asset
  • Closing the wage gap, ethical supplier trading, diversity — none of these now corporate priorities came from the boardroom, but they all stand prevalent there now

A business that operates with a stakeholder capitalism equilibrium – where global contribution culture mindset is endorsed alongside the shareholder agenda, providing a platform of voice for employees to vocalise what they need in return for their loyalty beyond remuneration – are the companies embedding themselves as the forefront trailblazers in the labour market.

Intuitive activation – signs you have already entwined it in business practice

This re-emerging stakeholder model may be dubbed idealistic, but we’re already seeing clear examples of representations of stakeholder capitalism in the existing daily operations of global companies:

  • Customer loyalty schemes were created because products for value alone can be easily transferred. To create a sustainable consumer, they want to see their loyalty matched. If they give to you, you give to them. Purchase from us and receive 15% off next time? That stakeholder model is stakeholder capitalism.
  • Recycling and community initiatives often cost employers to implement, whether through contracting collectors or setting up opportunities for volunteer schemes. This is not (yet) a global matter of compliance. This stakeholder model is again stakeholder capitalism and employers and shareholders recognising the backlash they face from an increasingly aware global consumer and employee base if they ignore their social responsibility.
  • Employee engagement was nothing more than a soft HR buzzword pre-millennials, it was Gen-Z that pioneered the importance of employees having a voice in humanizing their labour efforts. This is a stakeholder model concept that broke ground for social networks and review sites such as Glassdoor to open the floodgates to global transparency in the way a business operates, creating a platform for employee-voice that drove the agenda for workplaces to safeguard their reputations. This stakeholder capitalism saw shareholder’s accept and endorse the emergence of culture creation, paving the way to mental health and wellbeing initiatives, benefits and enhanced learning and development opportunities.

The above stakeholder model elements are not lightbulbs to anyone in companies’ modern-day business practice and spotlight the reality that shareholder primacy has reached its sell-by date. This is not to ignore the unarguable priority of shareholder’s capital agenda; however it demonstrates that an organisation’s profit has an interdependent reliance, and to achieve not only heightened but longevity in success, ‘backstage’ demands through a companies’ correct stakeholder model can be utilised as an asset.

stakeholder-capitalism

Use this stakeholder model to become an economic player

Stakeholder capitalism is a global attainable competitive advantage that Klaus Schwab summarised as ‘a global economy that works for progress, people and planet’ (WEF, 2021). It’s an opportunity for shareholders and companies of all frameworks to become economic players and understand their ability to have conscious success and the rewards they can reap from that approach.

There is now more appetite for social purpose businesses – an endorsement to committing to creating a better world – and that is a direct result of stakeholder capitalism. Every customer is an employee and every employee is a customer and we all have a contribution to the planet we imbed our feet on.

It comes full circle. Business is still business, but it’s the dilution of self-interest and recognition of how they are doing it and who it impacts that can now make or break companies’ long-term models. Closing the wage gap, ethical supplier trading, diversity – none of these now corporate priorities came from the boardroom, but they all stand prevalent there now.

The impact of this stakeholder model is going viral, and once recognised, you’ll notice stakeholder capitalism on a global mandate.

It’s already gone viral

Consider the momentum of campaigns with the greatest reach such as Nike’s significant spotlight on Serena Williams’ ‘Dream Crazier’; they chose not to ignore the reality of both conscious and unconscious bias – but demonstrate the power in breaking the stereotype and celebrating women in sport. Brewdog made history in becoming the first carbon-negative beer business. Tommy Hilfiger reacted to the impact of COVID-19 by launching its commitment to ‘waste nothing and welcome all’, further partnering with FutureLearn to empower all fans (E-Consultancy, 2021).

These public commitments to driving transformational global change put limitations on the risk of shareholder lip-service and companies must operate the same.

This can be identified in the emergence of company values and mission statements. Company values underpin an organisation’s principles, they are ‘cultural cornerstones’ that establish the way in which a business wants to be identified. A mission statement is the direction, it’s big picture thinking. Traditionally, an employee would join just for a job with restricted future foresight, or a company was about product alone with help from advertising to gain the consumer. But with this revitalised stakeholder model approach, companies understand that stakeholders want to support a brand that stands for something bigger and creates a reason behind their following. That gains an ambassador and longevity in both team members and a global consumer base.

Organisations who utilise this approach turn stakeholders into influencers, without the price tag.

Stakeholder capitalism is taking a long term view in company performance and seeks to create space for understanding not only the ‘what’ but further the ‘who’, the ‘how’ and the ‘why’. This approach to shareholder and leadership foresight and understanding the necessity in the correlations of all stakeholders underpins outperformance. The McKinsey Global Institute found that ‘those with a long-term view outperformed the rest in earnings, revenue, investment, and job growth’ (McKinsey, 2017).

The prevalence of this concept is only increasing

COVID-19 hit us with a stark realisation of how interconnected society is, and further the freeze it put on ‘normal’ paved the way for our understanding of the importance of global equity. It saw stakeholder capitalism further evolve to expand in prioritising not just our own organisational network and individual needs, but further seeking to understand and support others to level the playing field.

This stakeholder model as an example, saw many organisations launch Employee Resource Groups (ERG’s) to create platforms for pushing required change, recognising that the answers are best received as directives from those impacted. Organisations have the answers readily available, the delay is merely on waiting for the questions to be asked. So what are you waiting for?

Governance is following suit, which means soon the concept cannot be ignored. Section 172 of the UK’s Companies Act 2006 has received a proposal to update the existing compliance instruction of “to promote the success of the company” to being a duty to “advance the purpose of the company” .. “to benefit its members as a whole, whilst operating in a manner that also (a) benefits wider society and the environment in a manner commensurate with the size of the company and the nature of its operations; and (b) reduces harms the company creates or costs it imposes on wider society or the environment, with the goal of eliminating any such harm or costs” (Pinset Masons, 2021).

Stakeholder capitalism enables organisations to lead, or to follow. With its many examples of enhancing business performance and creating the framework for sustainable success, the only question to stand is – why would you not?

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