Picture: 123RF/Le Moal Olivier
Picture: 123RF/Le Moal Olivier

The theme at Davos this year was stakeholder capitalism, which can be defined as a system in which corporations are orientated to serve the interests of all their stakeholders: employees, customers, suppliers, communities and shareholders. The context was a sustainable world and the hypothesis was that, if corporations serve all their stakeholders, this will make a significant contribution to sustainability and, by extension, to a better world for all of us to live in, prosper and enjoy.

The debate immediately becomes competitive rather than collaborative, which undermines creativity. It becomes a stand-off between shareholder capitalism or maximising shareholder value (MSV), as championed by American economist Milton Friedman, who said: “The business of business is business.”

The champions of stakeholder capitalism, like Prof Klaus Schwab, founder and executive chair of the World Economic Forum, believe it will address the lack of integrity that a cynical society perceives in corporate and political leadership. Another of these champions, Prof Colin Mayer of Oxford, frames it like this (nicely referencing Friedman): “The purpose of business is not to produce profits. The purpose of business is to produce profitable solutions to the problems of people and the planet.”

This need to balance and compromise between stakeholders is not a new idea. Way back, management consultant and author Peter Drucker persuasively put the emphasis here: “There is only one valid purpose for a corporation: to create a customer.” This motivated Steve Denning, a leadership guru who writes for Forbes, to invent the concept of “Customer Capitalism”. Author Simon Sinek puts it this way: “Profit isn’t a purpose, it’s a result.” He goes further by saying that businesses need to define why they are in business beyond making money.

The solution lies in getting beyond the argument and recognising the need for compromise or, better, collaboration. After all, stakeholder capitalism in no way discounts the shareholder as an important stakeholder. In fact, any good brand strategy recognises the need to address all stakeholders in the benefits analysis, even though organisations will certainly prioritise it differently. For example, employees may be given priority if innovation is essential; customers will be the central focus if service is essential or if there is a plethora of choice and shareholders will be considered first if expansion needs to be financed or if the brand is on the market.

Overall, the respected corporate leaders who attended Davos were in support of stakeholder capitalism. Coca-Cola CEO James Quincey said: “It’s not a versus. The Coca-Cola business has been set up under a simple idea for a long time: it can’t be a viable business without a viable community.” Unilever CEO Alan Jope said his company’s focus on sustainability has even had a positive impact on talent management. According to Jope, it has made the company “an absolute magnet for talent” as shown by its LinkedIn ranking of number three after Google and Apple”.

The big take-out:

Any good brand strategy recognises the need to address all stakeholders in the benefits analysis.

This comment by Jope gets us to the real point: integrity and measurement. Shareholder returns are measurable; the benefit to other stakeholders must be made measurable too (like the LinkedIn example) so that stakeholder capitalism goes beyond words to delivery.

This was brought home to me when I watched President Donald Trump addressing the Davos crowd, which included Greta Thunberg. Among other things, he said: "To embrace the possibilities of tomorrow, we must reject the perennial prophets of doom and their predictions of the apocalypse. They are the heirs of yesterday's foolish fortune tellers." When recalling that the world’s leaders committed themselves to doing something about climate change over 30 years ago, and have delivered next to nothing to address it, his words ring hollow. The so-called prophets of doom, the latter-day fortune tellers, are the ones delivering measurable facts and those facts tell us that we have serious challenges.

No wonder stakeholders are cynical about leadership. No wonder there is so much anger. Saying the words is important because integrity starts with promises, but there has to be the will, the morality and the ethics to measurably deliver. Only then will stakeholder capitalism be genuine.         

  • Johnny Johnson is a brand and communications strategist at TowerStone Leadership Centre