Stakeholder Capitalism

With our economy poised for takeoff, our policy-makers must focus on some guiding principles for our economy. After the disastrous flirtation by the PNC with “co-operative socialism” in the 1970s, we should appreciate, along with the rest of the world, that we have to create wealth through capitalism before we can distribute it. But this does not mean that we should not be wary of the dangers of unbridled capitalism.
Fortunately, there are models out there for us to choose from. As the founder of the “World Economic Forum”, Klaus Schwab said earlier this year: “Generally speaking, we have three models to choose from. The first is ‘shareholder capitalism,’ embraced by most Western corporations, which holds that a corporation’s primary goal should be to maximise its profits. The second model is ‘state capitalism,’ which entrusts the Government with setting the direction of the economy, and has risen to prominence in many emerging markets, not least China. But, compared to these two options, the third has the most to recommend it. ‘Stakeholder capitalism,’
(which) positions private corporations as trustees of society, and is clearly the best response to today’s social and environmental challenges.
Shareholder capitalism, while very successful, had neglected the fact that a publicly listed corporation is not just a profit-seeking entity, but also a social organism. Together with financial-industry pressures to boost short-term results, the single-minded focus on profits caused shareholder capitalism to become increasingly disconnected from the real economy.
Stakeholder capitalism is quickly gaining ground. To that end, the World Economic Forum is releasing a new “Davos Manifesto”:
A. The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities and society at large. The best way to understand and harmonise the divergent interests of all stakeholders is through a shared commitment to policies and decisions that strengthen the long-term prosperity of a company.
i. A company serves its customers by providing a value proposition that best meets their needs. It accepts and supports fair competition and a level playing field. It has zero tolerance for corruption. It keeps the digital ecosystem in which it operates reliable and trustworthy. It makes customers fully aware of the functionality of its products and services, including adverse implications or negative externalities.
ii. A company treats its people with dignity and respect. It honours diversity and strives for continuous improvements in working conditions and employee well-being. In a world of rapid change, a company fosters continued employability through ongoing upskilling and reskilling.
iii. A company considers its suppliers as true partners in value creation. It provides a fair chance to new market entrants. It integrates respect for human rights into the entire supply chain.
iv. A company serves society at large through its activities, supports the communities in which it works, and pays its fair share of taxes. It ensures the safe, ethical and efficient use of data. It acts as a steward of the environmental and material universe for future generations. It consciously protects our biosphere, and champions a circular, shared and regenerative economy. It continuously expands the frontiers of knowledge, innovation and technology to improve people’s well-being.
v. A company provides its shareholders with a return on investment that takes into account the incurred entrepreneurial risks and the need for continuous innovation and sustained investments. It responsibly manages near-term, medium-term and long-term value creation in pursuit of sustainable shareholder returns that do not sacrifice the future for the present.
B. A company is more than an economic unit generating wealth. It fulfils human and societal aspirations as part of the broader social system. Performance must be measured not only on the return to shareholders, but also on how it achieves its environmental, social and good governance objectives. Executive remuneration should reflect stakeholder responsibility.
C. A company that has a multinational scope of activities not only serves all those stakeholders who are directly engaged, but acts itself as a stakeholder – together with governments and civil society – of our global future. Corporate global citizenship requires a company to harness its core competencies, its entrepreneurship, skills and relevant resources in collaborative efforts with other companies and stakeholders to improve the state of the world.