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Draft:Stakeholder Capitalism

"Stakeholder Capitalism" is the name for a human approach to capitalism that seeks to address the needs of all stakeholders, including shareholders and customers, employees, distribution partners, suppliers, vendors, and communities. Beyond that, the term lacks an agreed-upon definition. The two existing definitions have a subtle but significant difference that has an impact on the growing debate on the subject (See Etymology.) Investopedia defines Stakeholder Capitalism as "a system in which corporations are oriented to serve the interests of all their stakeholders. Among the key stakeholders are customers, suppliers, employees, shareholders and local communities." The Enterprise Engagement Alliance, a trade organization, defines it as: "a people-centric approach to capitalism that focuses on meeting an organization's responsibilities to shareholders through a strategic and systematic process that addresses the needs of all stakeholders.[1]"

The issue of the definition was addressed in a recent article in Forbes magazine.

The topic of Stakeholder Engagement has received both favorable and unfavorable coverage in such publications as the New York Times, Fortune magazine, Barron's, the Wall Street Journal, and many more publications since 2019.

Contents

·      1Etymology

·      2History

·      3Economic Justification

·      4References

·      5External links

Etymology[edit]

Stakeholder Capitalism calls for a more humanistic capitalist society that emphasizes the importance of addressing the needs of all stakeholders as opposed to focusing only on shareholders. More specifically, depending upon the organization, stakeholders include employees, customers, distribution partners, suppliers, and communities--anyone whose interests are affected by the organization. Because the concept effectively bubbled up from the activities of business people rather than from educational institutions and is taught nowhere in schools, the lack of a clear definition has led to early controversy.

One of the first references to the concept is made in the Davos Manifesto, published in 1973 by Klaus Schwab and the World Economic Forum. That is the likely origin of the Investopedia definition, because it read: "The purpose of professional management is to serve clients, shareholders, workers and employees, as well as societies, and to harmonize the different interests of the stakeholders."

Most of the opposition to the concept is based on the Davos Manifesto and Investopedia definition, because these appear to change the responsibility of an organization from meeting the needs of shareholders--contrary to the principles of the economist Milton Friedman--by trying to equally address and balance the needs of all stakeholders, i.e., employees, customers, distribution partners, suppliers, and communities. Opponents argue that it is the sole obligation of people who raise capital from shareholders to focus on their interests and that, in any case, it's impossible to run an organization based on balancing the needs of all stakeholders. See Harvard Law School Forum Corporate Governance: The Illusory Promise of Stakeholder Capitalism, and the Wall Street Journal, The Stakeholders Against the People.

The alternative definition of Stakeholder Capitalism does not take issue with the organization's responsibility to its shareholders, but only with what is considered the best means of addressing shareholder interests. Based on considerable research as well as common sense, the alternative definition is based on the premise that shareholders will achieve a better return from investments in organizations with a strategic and systematic approach to addressing the needs of all stakeholders, because these organization have a more sustainable method of achieving higher profits in a manner more harmonious with the needs of society. The goal of the Stakeholder Capitalist-based organization remains the same; what changes is the manner in which the goal is achieved and the resulting benefits to all stakeholders, not only shareholders. See: Enterprise Engagement: A Primer.

History[edit]

The first formal reference to the term "Stakeholder Engagement" to be found on the Internet dates back to the Davos Manifesto of 1973. The term did not gain much traction in the business media until 2019, when the Business Roundtable organization of leading companies changed its definition of corporate governance to focus not only the needs of shareholders but on all stakeholders. Use of the term has been popularized by the JUST Capital outreach organization started in 2019 and by B-Lab, which certifies organizations in sustainable practices. Another proponent of the general principles is an organization founded by John Mackay of Whole Foods known as Conscious Capitalism.

The concept of achieving better, more sustainable results through a strategic and systematic approach to addressing the needs of all stakeholders is the product of many organizational thinkers dating back to the 1980s. This includes the work of Edward Deming, who wrote about the importance of addressing the needs of all customers, which he defined as both internal and external stakeholders. Similar principles were advanced during that time period by the author and consultant Peter Drucker, Harvard professors and James Heskett, the consulting firm Peppers & Rogers, and later consultants at the Gallup Organization, Marcus Buckingham, Curt Coffman, John H. Fleming, and James Harter (See, Manage Your Human Sigma.) The Forum for People Performance Management and Measurement at the Medill School of Journalism, Media, and Integrated Marketing Communications, conducted considerable research on the connection between employee and customer engagement and financial results in the early 2000s. Based on that and other research, the Enterprise Engagement Alliance was founded in 2008 to promote the benefits of having a strategic and systematic approach to engaging all stakeholders, including the creation of an experimental stock index of "engaged companies" as well as a practical process for the implementation of stakeholder capitalism principles known as Enterprise Engagement.

In 2012, the International Organization for Standardization (ISO) published new quality management principles updated to include the need to address the interests of all stakeholders.In 2015, it issued new Annex SL requirements applicable to 60 ISO business process standards that require ISO-certified organizations to demonstrate a strategic and systematic approach led by the CEO to address the needs of all "interested parties." In 2015, ISO created the first certification for quality people management known as ISO 10018 Quality Management guidelines. DTE Energy, a publicly held energy company based in Detroit, MI, earned the first ISO 10018 certification.

Over the years, a number of business leaders have embraced the principles of Stakeholder Capitalism without using the term, including Herb Kelleher, co-founder of Southwest Airlines, John Mackay of Whole Foods, Hubert Joly of Best Buy, Kenneth Frazier of Merck, Paul Tudor Jones, the hedge fund investor (whose JUST Capital organization does use the term), Laurence Fink of Blackrock, and many more.

The concept of Stakeholder Capitalism has gained traction in recent years in concert with the increasing number of investors with an interest in Environmental, Social, and Governance issues, including pension fund coalitions such as the Human Capital Management Coalition. By some estimates, over $13 trillion in capital is now invested based on Environmental, Social, and Governance issues.

Economic Justification[edit]

The concept of Stakeholder Capitalism arose not from theorists but from business leaders seeking a more effective and sustainable way to achieve organizational results. Whereas investors and the stock market for many years rewarded companies for behaviors that generated short-term returns, such as cost-cutting and share buy-backs, a number of business leaders and investors have come to the conclusion that a strategic and systematic approach to addressing the needs of all stakeholders yields more sustainable results. See these studies and articles for example of the return-on-investment of Stakeholder Capitalism principles.

Putting the Service Value Profit Chain to Work,

The Surprising Economics of a People Business.

Study of Stock Market Performance

The Enterprise Engagement Alliance Engaged Company 6-Year Stock Index Study.

JUST Capital stock index fund performance

Barron's Most Sustainable Companies list

References[edit]

1.     ^ "Davos Manifesto 2020: The Universal Purpose of a Company in the Fourth Industrial Revolution". Retrieved 2020-04-11

2.     ^ "Engagement Strategies Media: Stakeholder Capitalism: A Primer". Retrieved 2020-04-11

3.     ^ "Engagement Strategies Media: DTE Energy's Customer Service Organization Achieves First ISO 10018 Certification for Quality People Management". Retrieved 2020-04-11

4.     ^ "Here's what you need to know about the $12 trillion ESG investment world". Retrieved 2020-04-11