Stakeholder capitalism has made a strong comeback in the way we understand and address the global economy, society and the environment’s health, but what is the role of companies?
In light of the World Economic Forum’s Annual Meeting in Davos, there are many new and challenging topics for world leaders to address, discuss or try to get a grasp of: tackling globalization and resilience, climate change, reforestation, inclusion, the future of the internet, equality, the labor market after the pandemic, mental health…
One of the key topics discussed in the Davos Agenda refers to the global economy and how the latter should and could work for people, the planet and progress. In this context, it is impossible to escape the increasingly popular concept of ‘stakeholder capitalism’ as a new and improved way to organize the economy.
If a company has happy employees, collaborative suppliers, satisfied regulators, and devoted consumers, then they will most likely help you deliver higher benefits over a longer-term period.
But what is stakeholder capitalism?
What stakeholder capitalism really comes down to is a long term approach and business mindset. Both shareholder and stakeholder interests align in the long term, and it is far more complicated to satisfy everyone in the short term.
There might be trade-offs to be taken into account when changing to a stakeholder centered approach, for example between profit and purpose, but even then, studies suggest evidence for such trade-offs are vague.
The basis and main argument for taking on a stakeholder approach is the idea that if a company has happy employees, collaborative suppliers, satisfied regulators, and devoted consumers, then they will most likely help you deliver higher benefits over a longer-term period.
Stakeholder capitalism is not new
The stakeholder approach has been around for longer than what many may think. In fact, during the postwar decades that so thoroughly defined the West, for better or for worse, it became stubbornly clear that one entity or individual could only thrive if the whole community and economy were fully functional.
And like that, the indivisible link between companies and their communities was born. However, as the years went by the idea of stakeholder approach began to fade out while economists increasingly pushed forward the idea of ‘shareholder primacy’ and the notion that businesses’ social responsibility was to make profit, period. Consequently, it wasn’t long until companies chose to focus on short term gains in an increasingly competitive market.
The planet’s health has become the main driving factor for the emerging comeback of stakeholder capitalism, as well as the center of the global economic system.
Stakeholder capitalism today
The stakeholder approach is coming back stronger than ever, and it arguably looks as though it is here to stay. The complexity of current social, economic and environmental challenges has made it clear that the only possible and appropriate response is to consider all actors in society beyond short term benefits or self interests.
What makes today’s stakeholder centric approach different from the past is the clearly global nature of it all. The interconnection and interdependence of world economies, societies and ecosystems is significantly stronger than that of 50 years ago, and this truth is especially visible for the planet. A decision or action made on one side of the world is likely to affect others and fundamentally affect future generations.
We could say the planet’s health has become the main driving factor for the emerging comeback of stakeholder capitalism, as well as the center of the global economic system. Also, the sanitary crisis has arguably been the most transformative event in the last decade in the process of understanding that societal wellbeing is a collective matter, and no one is safe until everyone is.
The role of companies
Businesses all over the globe are one of the main pillars of society, the planet, and most obviously, the economy, but how can companies take on this new stakeholder centric approach? Although it is not an easy task and the challenge is complex, there are a few steps to follow to begin the journey towards the transformation of businesses into forces of progress, peace and a healthy planet.
- Let’s start from the beginning: Companies are never born with the sole idea of making profit, and that’s precisely where the purpose of a company lies. Businesses should go back to the start and explore the idea that made them take on the corporate adventure in the first place. This is, rediscovering the idea that profit was needed as an output but not as a purpose.
- Your strengths are the world’s benefits: The best way to understand this following step is through a quote commonly attributed to Aristotle: “Where do your strengths overlap with the world’s needs? Therein lies your vocation’’. Once you point out the given vocation, it should be deeply embedded into the business, therefore making it a tangible and defining element of the organization.
- The present state of things: The next step, after taking a look back to the past, is addressing the current state of things internally. Is your workforce engaged with the purpose? There is little use in keeping employees solely engaged through discipline. Instead, other means should be explored, like collaboration, creativity and active participation; elements which actually and truly foster engagement in the ever-changing world of employee’s demands.
Companies are never born with the sole idea of making profit, and that’s precisely where the purpose of a company lies.
- Organizational and individual purpose: Is safe to assume people also want to have a sense of purpose and belonging in their job, as it takes up a vast amount of their time and lives. This last step is probably the most important and the one that culminates stakeholder capitalism as a people-planet-progress instrument. The sense of belonging as a team and working towards a positive goal can give meaning to individuals and organizations alike, helping align morals and values that for too long have been wrongly addressed as separate matters.
Engagement, purpose and transarency
We believe and work for transparency to be one of the key values driving the stakeholder transformation, as it is the only way to understand what we are doing wrong, what we are doing right and what it is that we are not doing yet.
Because being transparent is not only an externality to a company, or a given organization, to help build trust and reputation; it is in fact also a great learning and improvement mechanism. You cannot manage what you don’t understand. And so we advocate for transparency, integrity and precision as imperatives to the fight against today’s pending challenges.
In DoGood we are convinced of the need to understand and manage efforts to achieve a sustainable transition inside an organization for the correct and efficient functioning of the business and the community it operates in. We alone cannot achieve the substantial changes necessary, but we work on the basis of collaboration, transparency and accuracy in order to bring light to sustainable actions.
In this regard, it is essential to our work to promote good corporate governance, meaning that the processes of disclosure and transparency are followed so as to provide regulators and shareholders as well as the general public with precise and accurate information about the financial, operational and other aspects of the company, including a more accurate definition of the ESG performance.
We have developed a corporate government tool that helps establish ESG impact objectives for employees in regards to the sustainability strategy of the company. Through our technology we are able to activate and track employees’ impact, creating engagement that translates into improved ESG metrics, reputational value and an overall positive impact for the environment and society.