Stakeholder capitalism: from principle to practice

As Friedman’s shareholder theory gained popularity, it seemingly absolved corporations of difficult moral choices and protected them from public criticism if they made profits. The obsession with maximizing profits for shareholders alone has led to vast inequalities and damage to our planet. With increased movements towards social businesses, is it time to retire this view?

“The only corporate social responsibility a company has is to maximize its profits.”     - Milton Friedman

Thought leaders worldwide have denounced capitalism in favor of a new paradigm. Stakeholder capitalism is the idea that companies have a greater purpose than just providing returns for its shareholders. At the 2020 Davos World Economic Forum, Salesforce founder and CEO Marc Benioff stated that, “when we serve all stakeholders (employees, customers, the environment and society at large), business is the greatest platform for change.”

People and institutions put explicit and implicit pressure on people in business to prioritize owners and shareholders as seen in the latest Imperative 21 campaign.

Businesses are being called on to play a larger role in tackling issues such as climate change and global poverty. The stakeholder-driven model focuses on these socio-economic and environmental risks and opportunities. Additionally, it points out that if companies continue to put narrow, short-term profitability above all else, rather than seeing their companies as actors in a connected system, their business will likely come under threat in the process.

Business accountability

Inequality erodes the fabric of society. Business leaders at every level must use their power, platforms and resources to help communities overcome these challenges and build a stronger, just society. Using your sphere of influence, how can you promote equity and activate meaningful change?  

The recent push by big businesses in favor of a more conscious corporate-governance model is not just an empty rhetoric. With the public losing trust in business and markets, it is now imperative to reform the system so that it delivers prosperity for the many, rather than the few.

Capitalism in question around the world.

Business leaders have the ability to shape both the positive and negative outcomes of pressing global issues through the decisions they make and the services they provide. This means looking at environmental, social, and governance (ESG) issues on a systematic level to support the achievement of the Sustainable Development Goals (SDGs) by 2030. The framework emphasizes that business can use key indicators, including investment strategies, stewardship of the companies they invest in, and engagement with key stakeholders as part of wider collaborative action.

B Corporations are paving the way

A notable number of businesses are thriving in spite of the major challenges presented by the COVID-19 pandemic. The common thread among companies that are weathering the storm most successfully is an authentic and integrated commitment to purpose rather than exponential growth. In the last financial crisis, certified B Corporations were 63% more likely to survive than other businesses of similar size.

Rose Marcario, former CEO of Patagonia, has gone beyond the bottom line of the company, growing its sales whilst steering the brand onto a world-changing mission. With customers and employees demanding more from corporations, Marcario states that everyone from CEOs of big public companies to private companies, recognize that capitalism needs to evolve if we’re going to have healthy and thriving planet. Under Marcario, Patagonia became one of the highest-rated B Corporations.

Socio-economic inequality and environmental degradation has surged in recent decades resulting in the public losing confidence in the current system. This is the biggest motive behind the growing support for stakeholder capitalism, and rightfully so. In a time of global crisis, no business can afford to ignore the effects of its operations or remain in a gray area. By engaging all its stakeholders in shared and sustained value creation, a company makes a commitment to policies and decisions that strengthen the long-term prosperity of society. Satgana aspires to be part of the growing movement of certified B Corporations. This aligns with our philosophy of stakeholder value creation with a triple bottom line approach.