Implementing Stakeholder Capitalism
Recently, in the midst of hashing out a particular nuance regarding ESG (Environmental, Social, and Governance metrics), my colleague turned to me and said, “We’ve been talking about this stakeholder capitalism thing for a while now. I’ve known about ESG funds for months. But I just realized…I’ve never even taken a look at my own retirement portfolio.”
Somehow our whole exploration of stakeholder capitalism had occurred for him as “out there,” an intellectual, even theoretical exercise about the nature of the economy. It did not occur for him as actionable. But some of those actions were staring him right in the face!
We all intuitively understand that, when it comes to shifting our economy in a positive direction, simply talking the talk won’t suffice. As a society, and as individuals, we have to find a way to walk the walk, too.
What prevents us from walking the walk?
For one, we may simply be “loafing.” Social loafing is the psychological phenomenon by which humans exert less efforts in groups than when acting as individuals, often because they simply assume others in the group will rise to the occasion. The group gives us permission to not accept personal accountability. We take comfort in thinking, “somebody else will get around to it!”
Another reason could be that we are actually afraid to walk the walk. We’re more comfortable paying lip service to the change we want to see — but when it comes to doing what it takes to enact that change, we don’t have what it takes to stomach potential consequences.
There’s an irony here. If my colleague had switched his 401k over to ESG funds, his portfolio would have performed better this year. That’s what we keep finding, time and again, in our research. Counterintuitively, companies often perform better in a stakeholder model. This is true not only of employee/supplier satisfaction and environmental impact — it’s true in the domain of financial performance.
This has been part of what has been so astounding to me in my own learning about stakeholder capitalism. Much of the fear of “walking the walk” is unfounded. Adopting a stakeholder model, most of the time, actually doesn’t require such massive trade-offs in areas that I thought it would.
But I think it’s naïve to think that will always be the case. As we shift to a stakeholder model from a shareholder model, we should expect some growing pains. And as individuals and organizations, we need to ask ourselves whether we are prepared to endure those pains as they arise and to take the long view — for both financial and stakeholder gains.
Opponents of stakeholder capitalism like to point to the hypocrisy of leaders who sing its praises. “The Business Roundtable wrote a lovely statement,” they say, “but are they doing anything about it? Or just covering themselves with some nifty PR?”
I deduce a cynical tone in much of this pushback, and an unrealistic “all-or-nothing” expectation that change must happen overnight for it to happen at all, which I reject. But the voice of that detractor is important to hear and to remind us to constantly ask ourselves: Is stakeholder capitalism simply an idea to bounce around? Or a vision that we are committed to roll up our sleeves and make a reality?