5 Mins Read
Despite being around for half a century, the concept of “stakeholder capitalism” hasn’t garnered much attention until now as a solution to our escalating climate emergency. While some have argued that a more radical overhaul of capitalism itself is necessary, we must bear in mind what is realistic, viable and can quickly bring-about much-needed change. Stakeholder capitalism, which represents a more socially and environmentally conscious version of our current economic system, can offer real solutions to our ecological crisis and help usher in an inclusive, planet-forward future.
What Does Stakeholder Capitalism Mean?
A term proposed by Klaus Schwab, the founder and executive chairman of the World Economic Forum (WEF), stakeholder capitalism refers to an economic model where private corporations act as trustees in society. This means companies must take into consideration key stakeholders like customers, suppliers, employees, local communities and our environment, which impacts us all and calculate the true cost of business, including to humanity and the planet. It differs from the prevailing “shareholder” form of capitalism, which places profit maximisation and the pursuit of growth above all else.
According to Schwab, we must begin to ask ourselves which capitalism we want to choose, and we must choose carefully given current social and environmental stakes.
What Economic System Do We Have Right Now?
Shareholder, not stakeholder, capitalism has dominated our global economic system ever since it came into popularity in the 1970s when a group of neo-liberal economists convinced world leaders that the pursuit of growth would lead to universal affluence.
Faced with stiffer international competition after the gradual rehabilitation of post-war economies around the world, investors and politicians in already industrialised (and mostly Western) countries shifted to adopt the neoliberal thinking of influential and provocative thinkers like Milton Friedman, who believed that the search for profits was above all, good. This “trickle down economics” mindset, as we know it today, was underlined by a belief that the “good” would slowly seep back into society as long as companies made as much money as possible.
Corporate raiders, emboldened by this capitalist (im)morality of turning someone else’s loss into a profit, began pushing companies to reduce taxes, lower costs and increase their bottom line at all costs. CEOs and Wall Street investors internalised this line of thinking and developed business strategies catered to maximising shareholders profits above all other considerations.
Shareholder capitalism even changed the way the face of politics, turning states into aggressive free market deregulators and introducers of investor-friendly laws and low taxation regimes, all this at a major social cost (bye bye free education, bye free healthcare, bye middle class mobility). Once this ideology was firmly ingrained into the financial fabric of the United States and other powerful economies, its momentum was unstoppable, as country after country adopted the ideals of neo-liberal economic theory.
By 1997, powerful lobbying groups like the Business Roundtable – made up of the world’s top CEOs – were proudly championing this short-term gains doctrine. In an official white paper, the group explicitly stated that the “paramount duty” of the board of directors was to the corporations’ stockholders.
A Turning Point For The Planet
While shareholder capitalism did help lift millions out of poverty by creating new markets and employment opportunities, companies that became purely driven by growth also helped to instill a culture of mindless mass consumerism. We have become a society that prizes speed, convenience and the pursuit of wealth above all else and no matter the costs to our physical, mental and environmental wellbeing. Disposables are all the rage, we are encouraged (brainwashed?) to consume more, buy more, use more, eat more, WANT more.
Suddenly, the cost of all this has become apparent thanks to global health pandemics, extreme weather turmoil and an angry, vocal younger generation. Suddenly, we are paying attention to the destruction this has wreaked upon our planet. Suddenly, the numbers aren’t adding up anymore.
According to the 2017 Carbon Majors Database, just 100 energy companies are responsible for a whopping 71% of industrial emissions since anthropogenic climate change was recognised. The same report also showed that the top 15 food & drink suppliers in the United States generate 630 million tonnes of greenhouse gases every year – that’s more than what Australia is responsible for annually.
Given this, it is unsurprising that we are beginning to see people at the top of the power structure take note. Thanks to the young students who have rallied around the Swedish climate activist Greta Thunberg to take to the streets for climate action week in week out for most of 2019, and thanks to motivated millennials and Gen-Zers who no longer wanting to buy from companies who fail to exemplify social and environmental responsibility, executives and investors have finally realised that the current economic system is tantamount to a betrayal of future generations.
It’s Gaining Traction
Last year, the language of the business world evolved, beginning with BlackRock’s Larry Fink famously calling on companies to become more socially and ecologically responsible. Business strategies included more visible outward pledges to fight climate change by reducing emissions and waste, improving employee benefits and giving back to the community.
Even the influential Business Roundtable changed their tone, seeking to redefine how they were being perceived by the public through a new approach that would no longer only place the interests of shareholders first. Instead, in their latest statement, the group would share a “fundamental commitment” to protect the environment, invest in employees and deal ethically with suppliers for the future of “companies, communities and our country.”
“The threshold has moved substantially for what people expect from a company. It’s more than just producing profits for the shareholders,” said Klaus Schwab to the New York Times.
While this turn is clearly long overdue, it marks a clear break from the past – companies have to be responsible to survive, or risk having their products and services boycotted, a major new threat of doing business. One angry viral Tweet can take down an entire company. Business leaders are now presented with an incredible opportunity to be on the right side of history and uphold their duty to society by helping to bring about necessary progress in climate action.
Lead image courtesy of Resilience.