Five Things to Know About Stakeholder Capitalism
Weber Shandwick recently released “Living the Promise of Stakeholder Capitalism,” an advisory with context on the role of business in society and a roadmap for corporate decision-makers on how to accelerate adoption of stakeholder capitalism principles and navigate increasing scrutiny of purpose leadership.
There is a lot to understand about stakeholder capitalism, so here are five key things to know:
1. Data show the value of Stakeholder Capitalism
Stakeholder Capitalism is a management theory that considers serving the interests of all stakeholders as essential to the long-term success and health of any business. There is a growing recognition among business leaders that profit and purpose are linked, and that capitalism must meet all stakeholder needs, as demonstrated through CEO leadership and evidenced by key trends among stakeholder groups.
· CEO leadership. Weber Shandwick’s own research found that 67 percent of global communications and marketing executives surveyed report that having their CEO speak out on hotly debated current issues had a positive impact on company reputation. Further, 51 percent of executives whose CEO had been publicly silent said their company’s reputation would have a moderate to big advantage if their CEO spoke out. And a recent Harvard Business School study reveals that nearly two-thirds of respondents want CEOs to lead on policy change instead of waiting for governments to act.
· Employees. Peakon’s 2020 edition of The Employee Expectations Report found that employee concern about environmental impact increased 52 percent in 2019 — and concern among Generation Z employees rose 128 percent. Employee concern about diversity and inclusion increased 19 percent and wellbeing in the workplace increased 17 percent.
· Consumers. According to recent research by IBM* and the National Retail Federation, 40 percent of global consumers are “purpose-driven,” seeking products and services aligned with their values. Further, 57 percent of global consumers are willing to change their purchasing behavior and habits to help reduce negative environmental impact.
· Investors. Companies that have clear goals and strong results for economic, social, and governance (ESG) factors are showing strong economic performance. For example, funds that minimized ESG risk largely outperformed their benchmark indexes in 2020, even during the pandemic. Focusing on ESG is fundamentally about managing risk, from building resiliency into supply chain, managing scarce resources, improving pay equity, and ensuring diversity and inclusion at all levels of a company.
2. Best-in-class Stakeholder Capitalism efforts elevate corporate strategy and leadership
Leading companies are creating large-scale enterprise-level strategies to achieve end-to-end sustainability and deliver positive impact on stakeholders. A notable and early leader, Unilever*, launched its Sustainable Living Plan more than a decade ago, and reorganized the entire company around three purpose-driven business goals.
To create clarity and visibility about these strategies, companies often create named platforms to clearly delineate and communicate about their strategy. Notable examples include the Mars* Sustainable in a Generation Plan and the Nike Move to Zero platform These strategic initiatives speak directly to shareholders to demonstrate a future-looking sustainable business strategy that mitigates long-term risk while maximizing economic benefit. At the same time, the efforts resonate with employees, customers, partners, and communities who have new expectations about the role of business in society.
3. DE&I is a key component of Stakeholder Capitalism
Companies, particularly in the U.S., faced major, increased expectations in 2020 to contribute to the urgent goal of racial justice. Diversity, equity and inclusion (DE&I) is an important aspect of Stakeholder Capitalism — both in terms of how companies set internal DE&I policies and practices that support all employees and remove racial, gender, and other biases from policies affecting hiring, promotions, salaries, and benefits. As research proves, companies with strong track records on DE&I, especially at the C-suite and Board levels, also achieve better business performance across profitability and innovation. The business case is clear.
Now leading companies are reevaluating their DE&I investments and better linking them to the core business strategy. As companies continue on their DE&I journeys, however, stakeholders will be watching to see how ambitions and commitments are transformed into action and tangible impact for people. Key challenges to overcome are how to effectively measure DE&I outcomes to track progress and how to move beyond diversity quotas to create and sustain equitable and inclusive cultures over the long-term.
4. ESG is how investors measure Stakeholder Capitalism
ESG — Environmental, Social, and Governance — refers to non-financial metrics used by investors to evaluate aspects of corporate behavior that may help determine future financial performance. Stakeholder Capitalism is a perspective about issues and audiences that should be important to corporate leaders and ESG is a metrics system — particularly for investors — to evaluate the impact the company is happening on a series of non-financial matters.
5. How to measure the impact of Stakeholder Capitalism is under more scrutiny
Until now there has been no standard global framework for companies to demonstrate comprehensive progress and impact credibly and consistently around their ESG goals and no standardized approach that allows investors, analysts, and other interested parties to compare companies and ESG trends at a macro level.
In the fall of 2020, The World Economic Forum and the International Business Council (IBC) partnered with the Big Four accounting firms to create a common ESG framework — Stakeholder Capitalism Metrics — and encourage the companies in the IBC to adopt the standards. As of January 2021, 61 business leaders have committed to adopting the framework. This is a significant move to standardize global ESG reporting.
With greater support for Stakeholder Capitalism among stakeholders and more pressure on companies to demonstrate positive contributions to society — especially on climate and equity issues — these trends will only continue in 2021 and beyond.
*Weber Shandwick client
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